Judicial local protectionism in China: An empirical study of IP cases

International Review of Law and Economics 42 (2015) 48–59
Contents lists available at ScienceDirect
International Review of Law and Economics
Judicial local protectionism in China: An empirical study of IP cases
Cheryl Xiaoning Long a , Jun Wang b,∗
a
b
Wang Yanan Institute for Studies in Economics & School of Economics, Xiamen University, China
School of Economics, Xiamen University, China
a r t i c l e
i n f o
Article history:
Received 1 May 2014
Received in revised form
20 September 2014
Accepted 23 December 2014
Available online 3 January 2015
Keywords:
Judicial local protectionism
Intellectual property
Chinese case law
a b s t r a c t
Based on an empirical study of intellectual property cases published in the Bulletin of the People’s Supreme
Court of China (the PSC) since 1985 as well as a large sample of intellectual property cases collected from
five Chinese provinces filed during 1994–2009, this study finds that in first instance cases whether the
plaintiff’s residence coincides with the court’s location has a positive and significant impact on whether
the plaintiff gets a favorable ruling, after controlling for various plaintiff and defendant characteristics.
As the findings are robust to various tests, they provide consistent evidence for the existence of judicial
local protectionism in China.
On the other hand, no significant impact of plaintiff location on trial outcome is found in appeals rulings
for the IP cases. Instead, the appellate courts are found to redress the local protectionism problem in the
first instance rulings in the PSC cases, thus offering support for the argument that the case law developed
by the People’s Supreme Court aims at providing correctional mechanisms at the higher level to remedy
the wrongs perpetrated at the lower level judiciary. The empirical results using the larger five-province
sample, however, fail to find the rectifying effect of the appellate courts, suggesting that the goal of the PSC
has yet to be achieved in many Chinese regions. These findings provide new insights for the relationship
between law and development.
© 2014 Elsevier Inc. All rights reserved.
1. Introduction
China’s rapid economic growth in the past thirty years has
attracted scholars from different fields to offer explanations and
to study impacts, including experts who explore the relationship
between law and development. But in contrast to China’s stellar
economic performance, its courts have long been at the receiving end of criticisms, especially as the country increasingly relies
on the legal system to resolve various disputes. Lack of judiciary independence, overlapping jurisdictions, and low quality of
legal professionals are among the major issues raised by critics,
and the quality of rule of law is considered low by many (Orts,
2001; Lubman, 2006; Clarke et al., 2008). In particular, as a natural outcome of these legal issues, judicial local protectionism has
remained prevalent over time and thus has attracted the attention from scholars in law, political science, and economics as one
of the most serious problems plaguing the Chinese legal system
(Chow, 2003; Zhang, 2003; Gechlik, 2005; Wang, 2008). The China
∗ Corresponding author at: School of Economics, Xiamen University, China.
E-mail addresses: [email protected] (C.X. Long), [email protected]
(J. Wang).
http://dx.doi.org/10.1016/j.irle.2014.12.003
0144-8188/© 2014 Elsevier Inc. All rights reserved.
case thus seems to challenge the conventional wisdom on how
law relates to development, as stated in the Rights Hypothesis, i.e.,
by providing property and contract protection, a well-functioning
legal system is the key to a region’s sustained economic development (North, 1990; Hall and Jones, 1999; Acemoglu et al., 2001).
In the current study, we examine the issue of judicial local
protectionism by analyzing two samples of intellectual property
cases adjudicated in China between 1985 and 2011, covering 23
provinces. In one sample, we use all the intellectual property cases
included in the Bulletin of the People’s Supreme Court of China
between 1985 and 2011, whereas the other sample includes all
the IP cases posted online for the five major provinces of Fujian,
Shandong, Henan, Hunan, and Sichuan between 1994 and 2009. To
preview our empirical results, we find that in first instance cases
when the plaintiff’s residence coincides with the court’s location,
their probability of winning the case is significantly higher than in
a case when the plaintiff’s residence is different from the court’s
location, and such findings are robust to different samples and different specifications. The second set of findings relates to the role of
the appeals courts. We find no significant impact of plaintiff location on trial outcome in appeals rulings for the IP cases. Instead, in
the PSC cases, the appellate courts are shown to redress the local
protectionism problem found in the first instance rulings. The
C.X. Long, J. Wang / International Review of Law and Economics 42 (2015) 48–59
empirical results using the larger five-province sample, however,
fail to find the rectifying effect of the appellate courts.
Compared to existing studies on judicial local protectionism, we
not only give more direct evidence for the existence of judicial local
protectionism using a larger and more representative sample of
cases, but more importantly, we study appeals courts as well as first
trial courts in reaching legal judgments and explore their different
roles in impacting the problem of judicial local protectionism. As
one sample includes cases selected by the People Supreme Court
(PSC) for publication and circulation among lower level courts, our
study also helps shed light on the role of the PSC in China’s legal
system and its development. Specifically, we offer support for the
argument that the case law developed by the People’s Supreme Court
aims at providing correctional mechanisms at the higher level to
remedy the wrongs perpetrated at the lower level judiciary. But
there is also evidence that the admirable goal of the PSC has yet to
be achieved in many Chinese regions.
Because we observe first instance trials, appeals rulings, as well
as PSC’s case selection decisions, our study allows a more comprehensive exploration into the functioning of different levels of courts
in the Chinese legal system, which permits a better understanding
of how law regulates economic behaviors during China’s economic
reform and social transformation. The observed attempt of the PSC
in selecting and publicizing exemplary cases, where the appeals
courts play the correctional role in rectifying the mistakes made by
the lower courts, seems to provide support for an alternative theory linking law and development. Specifically, sustained economic
development may induce the need for rule of law and thus legal
development (Clarke et al., 2008).
Finally, our research on the cases published by the People’s
Supreme Court of China (the PSC) also provides materials for future
studies on Chinese case law. Despite China’s history in following
the continental law tradition since the late Qing dynasty, case law
has emerged as an increasingly important component of Chinese
law. In theory, judges should strictly interpret the stipulations in
existing statutes and regulations to reach their judgment in any law
suit. But in practice, the People’s Supreme Court in China have regularly selected legal cases to showcase the proper applications of
both Chinese statutes and the PSC’s own judicial interpretations
of statutes, by publishing these cases in the Bulletin of the People’s Supreme Court of China since 1985 and recommending them
to lower courts as guidance in future cases. How important is this
Chinese version of case law in reality? Our research on the PSC cases
versus the five-province case sample can help evaluate the impact
as well as the limitations of case law in China’s legal development.
More generally, the findings can help evaluate the role of case law
in development in general.
The remainder of the paper is structured as follows: Section 2
reviews the related literature. Section 3 describes the court system
and intellectual property laws in China, as well as the standards
and procedures for selecting PSC cases and the role of these cases in
influencing lower court rulings. Data sources and variable measurement are discussed in Section 4, while Section 5 presents estimation
specifications and empirical findings. Section 6 concludes with a
discussion on the implications of the empirical findings for economic theory and policy making.
2. Literature review
The current study most closely relates to the literature on
judicial local protectionism, which is local protectionism in the
judiciary, where the local courts abuse their legal power to protect local interests (Chow, 2003). Regarding the sources of local
protectionism in China, scholars have provided the following explanations. First, the current arrangements of fiscal decentralization
49
lead to interest conflicts between the central government and
local governments, where local governments have the incentive
to promote their own regional growth at the expense of other
regions (Lee, 1998; Young, 2000; Yin and Cai, 2001; Poncet, 2005;
Bai et al., 2008). Second, the promotion tournament among local
leaders, where their promotion prospects are linked with regional
economic growth, provides additional incentives for local protectionism (Zhou, 2004; Li and Zhou, 2005).
Several features of the Chinese judiciary system further help
explain why judicial local protectionism is a serious concern in
the country. First of all, the lack of independence of the Chinese
judiciary implies that the executive branch has the authority to
make personnel and budgetary decisions for the courts. In addition,
the locations of regional courts follow exactly the same administrative divisions as regional governments, which aligns one local
court with one local government, giving the latter full control of
the former (Zhang, 2003; Gechlik, 2005; Wang, 2008).
Scholars have also studied the impact of local protectionism.
Young (2000) find that it has led to market divisions and distortions. Bai et al. (2004) argue that governments in regions with
high profit industries or a larger state sector are more inclined to
provide local protectionism, which lead to a lower degree of specialization in these same regions. Following the same logic, Hu and
Zhang (2005) show that the trade barriers erected by local governments in protecting their own regional interests have reduced the
gains from trade among regions, as all regions now set up their
own independent economic structures, resulting in much overcapacity.
Due to lack of information, the above studies on local protectionism mostly rely on economic data to proxy the degree of
protectionism (also see Naughton, 2003, for instance). On the other
hand, most studies on judicial local protectionism are based on legal
or political analyses, which tend to be strong in description but lacking in diagnostics. A small number of economic studies empirically
examine judicial local protectionism in China. Chen et al. (2009)
focus on listed firms entangled in legal cases and find that the stock
prices of firms more likely to benefit from judicial local protectionism experience less fluctuation than those of other firms. Zhang
and Ke (2002) adopt the approach of case analysis. Using a sample
of economic legal cases from a basic court in Beijing, which were
adjudicated during a 7-month period, the authors find that the winning rate of local firms (38.4%) is higher than that of non-local firms
(25.9%).
The discussion above suggests that existing research on the
patterns, causes, and effects of local protectionism suffers from
two problems. First of all, most studies rely on regional economic
data to explore the issues, thus can only provide indirect inferences regarding the existence and patterns of local protectionism
(Young, 2000; Yin and Cai, 2001; Naughton, 2003; Bai et al., 2004;
Hu and Zhang, 2005; Poncet, 2005; Bai et al., 2008; Chen et al.,
2009). Relatedly, as such economic proxies can only indirectly measure protectionism, research findings oftentimes differ depending
on what data and proxies are used in the study. Furthermore,
these studies do not address judicial local protectionism specifically. The second problem relates to the small number of studies
that collect direct evidence of judicial local protectionism using
case analysis. The small sample of cases included and the narrow
regional scope covered challenge the generality of their empirical
findings. For example, with data limited to a single court in Beijing and the time period focused to a 7-month period, we will not
be able make nation-wide inferences about judicial local protectionism based on the Zhang and Ke (2002) study. Neither can we
study patterns and variations in protectionism across regions or
over time.
In the sections below, we will attempt to address these
two problems using two data sets. The first data set includes
50
C.X. Long, J. Wang / International Review of Law and Economics 42 (2015) 48–59
intellectual property cases published in the Bulletin of the People’s
Supreme Court of China between 1985 and 2011, while the other
data set covers a large number of IP cases from five major Chinese
provinces spanning the time period of 1994–2009. These two data
sets cover a much longer time period and much wider geographic
scope, thus offering richer information regarding the patterns of
judicial local protectionism.
The second body of literature that the current study contributes
to is that on law and development. Three alternative arguments
have been made regarding how law relates to economic development. The Rights Hypothesis maintains that a well developed legal
system is a prerequisite for sustainable economic growth (Hall and
Jones, 1999; Johnson et al., 2000; Acemoglu et al., 2001; Easterly
and Levine, 2003; Rodrik et al., 2004). Clarke et al. (2008), however,
propose that in the case of China, it is economic growth that has
induced legal development. A third argument combines the above
two theories to suggest a more complex relationship between law
and development as follows: In the early stage of economic development, the role of law is secondary and its development is a result
of economic growth; but as the economy expands and matures,
it becomes crucial that a well functioning legal system is established to provide protection for property and contracting rights,
which is needed for sustainable growth (Li and Li, 2000; Li et al.,
2003; Li, 2004). The reason that the Rights Hypothesis does not
apply in the early stage of economic development, according to
these authors, is the existence of alternative governance mechanisms that can substitute for the formal court system such as social
networks.
Partly to explore which of these theories best fits the Chinese
reality, Long (2010) finds empirical evidence showing that firms
located in regions with better courts tend to invest, invent, and
expand more, supporting the validity of the Rights Hypothesis. But
it is equally likely that having passed the stage of early development where the rule of law is dispensable, China has now entered
the reign of the Rights Hypothesis, as Li and Li (2000) would argue.
Furthermore, the study sheds no light on how the Chinese court system has improved from almost non-existence in the 1970s to the
point of offering reasonable protection for firms and individuals.
Thus, the relationship between law and development in China is
still a relatively novel research area. By examining the functions
of different levels of courts in the Chinese system, especially the
role played by the People’s Supreme Court, the current study can
produce more information and empirical evidence for this field of
research.
Additionally, the study of the detailed PSC cases in the current research contributes to the literature on case law and its
importance in China’s legal and economic reforms. In the literature on law and development, the role of the common law
system in promoting economic efficiency has been particularly
emphasized, as it has been given theoretical support in evolutionary theory based arguments as follows: When economic
efficiency can be gained by reversing the current ruling in the
precedent, litigants in related cases will have more incentives
to go to court; while their counterparts in cases with efficient
precedent rulings are more likely to settle cases out of court. As
Rubin (1977) puts it, “if rules are inefficient, parties will use the
courts until the rules are changed; conversely, if rules are efficient,
the courts will not be used and the efficient rule will remain in
force.” In other words, although the common law system gives
great precedential weight to prior cases and standing rulings, it
is the legal precedents with economically efficient rulings that
gain more secure status for future reference, whereas the less efficient rulings get repeatedly challenged in court through appeals
or by new litigants. As a result, precedent based common law
has the tendency to evolve toward economic efficiency (Rubin,
1977).
Although China’s legal system has largely followed the continental law tradition, it has long been debated as to whether
China should adopt a system of case law. Most scholars in the
debate support such a system, and their arguments range from
practical necessity (Liu, 2001; Zhang, 2002), to international references (Zhang, 2002), and to historical experiences (Wang, 2005).
In reality, the legal cases published by the PSC since 1985 have
served as models and have provided guidance for lower courts in
subsequent cases, very much like the role played by legal precedents in common law countries. In the words of Mr. Ren Jianxin,
who served as the PSC chief justice between 1988 and 1998:
“A set of illustrative cases have been published in the PSC Bulletin, which have helped provide guidelines for court trials” (Ren,
1991). And in 2010, the reference value of the published cases
was further bolstered by the issuance of the PSC’s “Provisions of
the Supreme People’s Court on Case Guidance”. Based on an analysis of specific administrative license cases, Chen (2011) argues
that the PSC Bulletin cases have a real impact on the rulings of
similar cases filed in lower courts. Additionally, using a survey conducted in Shanghai, Yuan (2009) reports that a majority of local
judges (51.4%) have used the PSC cases as references in reaching their rulings, while another 37.1% have consulted the Bulletin
cases yet did not find cases that are similar enough as references.
These PSC cases thus may be appropriately referred to as the case
law in China, which seems to play an important role but through
a route drastically different from that in common law countries.
In the laissez-faire market-like common law system, litigants and
judges act individually to make litigation and ruling decisions,
which then lead to economically efficient outcomes for society
according to the evolutionary argument. In contrast, the Chinese
legal system relies more on a centrally planned model to improve
judiciary quality, where good rulings from all over the country are
selected at the top level and then sent to lower level courts to be
studied and followed. Instead of the market competition among
judges (who compete for better rulings and thus more citations)
and among litigants (who resort to court or settlements for higher
economic gains), the superior abilities of judges at the top level are
relied on to deliver better rulings throughout the nation.
While much research has been done to compare the performance of the market system versus the planned system in
promoting economic growth, very little is known about the relative
efficacy of the two approaches in implementing case law: market
competition in case precedents versus central selection of cases.
The current study makes the first attempt at studying the effectiveness of the Chinese case law, using judicial local protectionism
as an example. In addition, as we have a larger sample of cases
that are geographically more representative of the whole nation
than those used in previous studies, we will be able to offer a more
comprehensive and objective evaluation of the role of case law in
China.
3. Institutional background
3.1. Litigation procedures in Chinese courts and intellectual
property laws in China
There are four levels of people’s courts in China, including basic
courts at the county or district level, intermediate courts at the
prefectural city level, higher courts at the provincial level, and the
supreme court in Beijing. For intellectual property cases, which are
the research focus of the current paper, the actor sequitur forum rei
doctrine is followed in determining the location of the suit, as in
other civil litigations. In other words, the plaintiff was to file a case
of first instance at the place where the defendant usually resides
C.X. Long, J. Wang / International Review of Law and Economics 42 (2015) 48–59
(see Article 21 of the Civil Procedure Law of the People’s Republic of
China).1
While a civil case usually starts its court proceedings at a basic
court in China, the court of first instance for intellectual property
cases is normally an intermediate court, based on the supreme
court’s rules regarding court jurisdictions over IP cases. According
to the rules, the courts of first instance for patent cases are intermediate courts in the capital cities of each province or autonomous
region, intermediate courts in the districts of the provincial level
cities, as well as other intermediate courts designated by the People’s Supreme Court. For copyright and trademark cases, the courts
of first instance include all intermediate courts, and in addition
the higher courts at the provincial level can grant jurisdictions
to certain basic courts depending on local needs. The justification
for starting an IP case in an intermediate court is the complexity
and technical knowledge requirement of the cases, which may be
beyond the capacity of basic courts.
In civil proceedings, the Chinese courts follow the rule whereby
the court of second instance is the court of last instance (see Article 11 of the People’s Court Organization Law of the People’s Republic
of China). If a party is not satisfied with the judgment of the first
instance trial, they may bring an appeal to the people’s court at
the next higher level. Judgments of the first instance trials become
legally effective if, within the appeal period, none of the parties
have appealed. Judgments from second instance trials (whether
they are held in intermediate courts, higher people’s courts, or the
Supreme People’s Court) and judgments from first instance trials
in the Supreme People’s Court are judgments of last instance, i.e.,
legally effective judgments.2
The contemporary IP laws in China have been drafted starting in
the 1980s. The first IP law to pass was the Trademark Law of the People’s Republic of China in 1982, and it has since been revised twice in
1993 and 2001, respectively. The Patent Law was first promulgated
in 1984, and has since followed an 8-year cycle of revisions, with
updates in 1992, 2000, and 2008. The last IP law to be ratified was
the Copyright Law of the People’s Republic of China in 1990, and two
revisions have been made in 2001 and 2010.
Compared to other legal cases, intellectual property cases
should suffer less from judicial local protectionism for the following
two reasons: First, compared to other civil cases that can be tried
in any court, only courts at the intermediate level or above have
the jurisdiction over most IP cases. Second, the lack of judiciary
independence implies that compared to higher level courts, lower
level courts will experience more intervention from various government agencies, thus potentially experience more judicial local
protectionism. Therefore, it more difficult to discover the existence
of local protectionism by focusing on IP cases. But if we find corroborative results in these cases, then it is convincing evidence for
the existence of judicial local protectionism in China.
3.2. Selection standards, procedures, and role of PSC Bulletin cases
Starting in 1985, the People’s Supreme Court has been selecting a sample of cases from different fields of law to be published
in the Bulletin of the People’s Supreme Court of China, which is the
official gazette of the People’s Supreme Court of China published
by the PSC’s administrative department, first quarterly, then bimonthly since 1999, and then monthly after 2004. The selection
1
Occasionally, the location of the suit can be the place of contract performance,
the place of payment, or the place of tort. But in the vast majority of cases, it is the
residence of the defendant that determines the location of the suit.
2
According to Article 199 of the Civil Procedure Law of the People’s Republic of
China, if a party thinks that a legally effective judgment or ruling has errors, he may
petition the people’s court at the next level for retrial. As none of the cases studied
in this paper involves retrials, we do not discuss this complex issue here.
51
procedures for the PSC Bulletin cases are as follows: Cases are first
recommended by local and provincial level courts to the editorial
board of the PSC Bulletin, based on the following criteria: the correct
application of the law, and the importance, complexity, or novelty of the case. The editorial board, usually consisting of former
judges and legal professionals, then conducts some preliminary
examination to toss out those cases considered unworthy of publishing, and categorizes the remaining cases into different fields
to send to the proper adjudication divisions for consideration by
judges familiar with the corresponding law. Next, the cases judged
to be appropriate are submitted to the director (or the chief judge)
of the corresponding adjudication division for approval, who then
presents the approved cases to the PSC vice chief justice in charge
of the corresponding field for confirmation.3
As a result, the cases included in the PSC Bulletin are by no means
a random sample of all the legal cases filed and adjudicated in the
Chinese court system. Instead, they cover a set of legal cases that
are most commonly encountered, most complex, or most novel.
And as the law has been correctly applied in the final ruling for all
these cases, they also demonstrate the highest standards of legal
judgments covering various areas of law in China.
This selective set of cases has significant importance to other
Chinese legal cases in general. Theoretically, there are two reasons
why local courts will need to pay close attention to these PSC cases.
First of all, the People’s Supreme Court supervises the functioning of all other courts, as stipulated by the Chinese Constitution,
and the PSC uses the rates of retrial and reversal (where the lower
court’s ruling is determined to be incorrect) as important standards for evaluating the performance of lower courts. Furthermore,
whenever there is ambiguity in the law, the PSC has the authority to provide the ultimate interpretation, hence it is important to
be consistent with the PSC. In reality, the PSC Bulletin has been
fairly timely in selecting and publishing cases that help clarify new
statutes, especially since it was published at a quarterly or monthly
interval in the past two decades.4 Additionally, Yuan (2009) and
Chen (2011) both provide evidence that the PSC cases do provide
meaningful guidance to local courts in case rulings. And the former
PSC chief justice Ren Jianxin also stated the following: “A set of illustrative cases have been published in the PSC Bulletin, which have
helped provide guidelines for court trials” (Ren, 1991).
The discussion above has two implications for the empirical
analysis in the current study. On the one hand, the problems during
the PSC cases’ first instance trials to be exposed by our empirical
study most likely will have nation-wide prevalence, by the relevancy standard for selecting these cases. On the other hand, the
goal to serve as references and guidelines for other court cases suggests that the PSC Bulletin cases may not be representative of the
nation-wide cases, as far as the ultimate judiciary outcomes, i.e., the
appellate rulings, are concerned. Therefore, we will need to carefully consider these implications in the part of our analysis below
that relies on the set of intellectual property cases published in the
PSC Bulletin.
4. Information sources and data description
In the attempt to investigate the issue of judicial local protectionism through a study of case law, we focus on intellectual
3
Before 1998, further discussion and approval by the PSC’s trial committee were
also required before a case was published in the Bulletin.
4
For example, the case of Liu Bingzheng v. Beijing Kangda Automobile Installation
& Repair Factory published in July 1989 (the 3rd issue of PSC Bulletin in 1989) is
¨
Contract Lawt¨ hat was enacted on November 1,
an application of China’s Technology
1987. On the other hand, the case of Dongfang Computer Technology Research Institute
v. Hengkai Company and Hengkai Business Department was published in the 3rd issue
of PSC Bulletin in 1995 to provide an application of the “Regulation on Computer
Software Protectiont¨ hat went into effect on October 1, 1991.
52
C.X. Long, J. Wang / International Review of Law and Economics 42 (2015) 48–59
property cases for two main reasons. First, the IP area is where the
Chinese legal system aligns the best with the international standards in terms of the quality of statutes, so we do not need to worry
about biases caused by deficiencies in the related laws (Pistor and
Xu, 2002). Second, the three types of IP cases, patent, copyright, and
trademark, are much more comparable than other types of cases,
thus allowing us to control for variations based on observable case
characteristics.
To study different aspects of the issue, we construct two samples
of legal cases, the PSC Bulletin sample and the five-province sample. To collect case information, we use the Peking University Fayi
Database by choosing cases involving IP property disputes, contract
disputes, or torts. The first sample of cases comes from the Bulletin of the People’s Supreme Court, and we construct the sample by
limiting the case publication source in the Fayi Database to the PSC
Bulletin. We are able to find 102 cases that were filed between 1986
and 2010, among which 28 cases only involve first instance trials
and 74 cases involve both first instance trials and appeals. Through
careful reading of each legal judgment, we manually collect information on case type (patent, copyright, or trademark), dates of filing
and ruling for first trial, dates of filing and ruling in appeal, number, location, and type of plaintiffs, number, location, and type of
defendants, damages demanded by plaintiff, winner in each trial,
location and level of court, and so on.
Based on such information, we then construct additional variables to use in the empirical analysis. In particular, whether the
locations of the plaintiff or the defendant match that of the court
is the variable of most interest to us, and we generate the indicator dummy as follows: The plaintiff same location as court variable
takes the value of 1 if the plaintiff’s location belongs to the same
geographic administrative division that corresponds to the court,
and it takes the value of 0 otherwise. As an example, if the court
is at the intermediate level, we ask whether the location of the
plaintiff belongs to the same prefectural city as the court, while in
the case of a higher court, we ask whether the plaintiff locates in
the same province. The defendant same location as court variable is
constructed similarly, and in cases involving multiple plaintiffs or
defendants, we give the same location variable a value of 1 as long
as the above question has an affirmative answer for at least one of
the plaintiffs or defendants.5 In particular, when an intermediate
court at the prefectural level accepts cases from more than one districts or counties (which are both below the prefectural level), we
judge the plaintiff or the defendant as sharing the same location
with the intermediate court, only when the location of the plaintiff
or the defendant belongs to the same district or county as the court.
It is also crucial to measure which party wins a legal case. As in
many cases, the final ruling may support only parts of the claims
made by either party, it can be fuzzy as to which party comes out the
winner. We use two alternative indicators to evaluate the outcome
of each legal case. In the first approach, we first look at cases where
one party appealed after the first trial and designate the appellee
in the appeal as the winner; while for cases that ended after the
first trial or cases where both parties appealed, we determine the
plaintiff to be the winner as long as the court supports at least some
of his or her damage demands in the first ruling. Alternatively, we
compute the ratio between the amount of damage demanded by
the plaintiff and the amount of damage granted in the ruling, and
use the ratio as the win rate of the plaintiff. While the first measure is more in line with the common idea of a win in legal cases,
5
These criteria are more conservative. By contrast, if we use the prefecture-level
administrative region as the criterion to judge whether the plaintiff or defendant
sharing the same location with court, it is more likely to appear that the plaintiff or
defendant did not share the same location with court in the appeal. However, the
results do not changed in either case.
Table 1
Summary statistics.
Variable
Panel A: PSC sample variables
Plaintiff win in 1st trial
Plaintiff win in appeal
Damage granted/damage
requested in 1st trial
Damage granted/damage
requested in appeal
Plaintiff same location as court in
1st trial
Defendant same location as court
in 1st trial
Plaintiff same location as court in
appeal
Defendant same location as court
in appeal
Patent case
Copyright case
Trademark case
First trial in coastal region
Appeal in coastal region
Distance between plaintiff and
court in 1st trial
Distance between defendant and
court in 1st trial
Distance between plaintiff and
court in appeal
Distance between defendant and
court in appeal
Plaintiff is firm
Defendant is firm
Plaintiff is SOE
Plaintiff is private firm
Plaintiff is foreign firm
Defendant is SOE
Defendant is private firm
Defendant is foreign firm
Obs.
Mean
S.D.
Min
Max
102
74
86
0.69
0.61
28.39
0.47
0.49
34.55
0
0
0
1
1
100
57
29.57
32.52
0
100
102
0.50
0.5
0
1
102
0.83
0.37
0
1
74
0.66
0.48
0
1
74
0.95
0.23
0
1
102
102
102
102
74
102
0.34
0.31
0.34
0.81
0.80
1.68
0.48
0.47
0.48
0.39
0.40
3.33
0
0
0
0
0
0
1
1
1
1
1
11.94
102
0.18
0.92
0
8.87
74
1.53
3.05
0
11.41
74
0.23
0.46
0
1.89
102
102
102
102
102
102
102
102
0.71
0.92
0.24
0.21
0.26
0.44
0.40
0.07
0.46
0.27
0.43
0.41
0.44
0.5
0.49
0.25
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
1
0.65
0.54
0.43
0.31
0.27
0.45
0.48
0.50
0.50
0.46
0.44
0.50
0
0
0
0
0
0
1
1
1
1
1
1
0.68
0.47
0
1
0.67
0.47
0
1
0.87
0.34
0
1
0.61
0.84
0.49
0.37
0
0
1
1
Panel B: Five provinces sample variables
449
Plaintiff win in 1st trial
Plaintiff win in appeal
449
449
Patent case
449
Copyright case
449
Trademark case
449
Plaintiff same location as court in
1st trial
449
Defendant same location as court
in 1st trial
449
Plaintiff same location as court in
appeal
449
Defendant same location as court
in appeal
449
Plaintiff is firm
449
Defendant is firm
the second measure provides a continuous and thus more nuanced
view of the legal outcome. In addition, to ensure that the results
of first trial and appeal are comparable, instead of using the title
of appellant and appellee, we continue to use the titles of plaintiff
and defendant in the appeal. Panel A in Table 1 provides descriptive
statistics for case characteristics in the PSC sample.
It is clear from the table that although plaintiffs win in the majority of the cases (over 60%), their damage demands are only partially
supported by the court (less than 30%). In the first instance trials,
the court is in the same location as the defendant in over 83% of the
cases, largely consistent with the actor sequitur forum rei doctrine.
The small proportion of cases tried in courts outside of the defendant’s location are mainly due to the lack of intermediate courts
with jurisdiction over patent cases where the defendant resides. As
expected, the percentage of plaintiffs that share the court’s location
is substantially lower than the defendants.
C.X. Long, J. Wang / International Review of Law and Economics 42 (2015) 48–59
53
113
8
7
7
100
8
8
7
6
6
5
5
4
5
4
4
3
3
3
76
Number of cases
50
Number of cases
4
6
6
95
3
24
22
2
17
2
2
75
1
1
1
1995
1
1
4
6
2
1
2010
2009
2007
2008
2006
2004
2005
2002
2003
2001
2000
1998
1999
1997
1996
1995
1993
1994
1991
1989
1990
1987
1988
1986
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1998
1999
0
0
1
1996
1
1994
11
Fig. 3. Distribution of first instance cases over time (five province sample).
Fig. 1. Distribution of first instance cases over time (PSC sample).
plaintiff location information, we obtain a sample of 449 cases. We
then manually collect information on case type, plaintiff location,
defendant location, court location in both trials, time of filing, time
of termination, and case outcome.
Figs. 3 and 4 give the temporal and geographic distributions of
the legal cases in the five-province sample, while Table 1, Panel
B gives descriptive statistics for the sample. As Fig. 3 indicates,
the cases are distributed over the period of 1994–2009, with substantially more cases coming from 2001 to 2008, especially during
2004–2007. Geographically, the five provinces span the eastern,
central, and western regions of the country, also including both
northern and southern provinces from China. And as shown in Fig. 4,
each of these provinces also has a sizable set of IP case filings so
that not a single region or a small number of regions dominate
the sample. In this aspect, the five-province sample is more representative of the average Chinese IP cases, as compared to the PSC
sample.
Panels A and B in Table 1 indicate several differences between
the five-province sample of cases and the PSC Bulletin sample. The
win rates for the plaintiff in both the first trial and the appeal tend
to be lower in the five-province sample, and so are the probabilities of plaintiff and defendant being in the same location as the
court in both trials. Furthermore, both the plaintiff and the defendant are more likely individuals in the five-province sample. These
patterns suggest that the PSC cases are most likely selected from
larger regions, which have their own courts, and they also tend to
be larger cases involving firms rather than individuals.
Although the PSC case sample lacks the representativeness of
average nation-wide cases, detailed information regarding case
characteristics such as ownership type of the litigating parties and
so on is available for cases included in the sample, which allows
us to analyze several important issues. Therefore, we will use both
150
30
While the IP cases in the sample are evenly distributed among
patent, copyright, and trademark cases, their geographic distribution is largely skewed toward the coast. Regarding party identities,
while plaintiffs are pretty evenly distributed across individuals,
state owned enterprises (SOEs), private firms, and foreign firms,
defendants are predominantly SOEs and domestic private firms.
Finally, the distance between the plaintiff (defendant) and the court
further confirms the relevance of the actor sequitur forum rei doctrine, as the defendant tends to be located substantially closer to
the court, relative to the plaintiff.
Figs. 1 and 2 further give the temporal and regional distributions of the legal cases included in our sample. Although there is no
clear pattern in how the cases distribute over time, we can see that
significantly more cases come from Beijing, Shanghai, and Jiangsu.
In the section on robustness checks, we will address the question
of whether cases from these three regions dominate the findings in
the current study.
Because the sample of IP cases are those published in the Bulletin of the People’s Supreme Court, one may challenge whether these
cases are representative of all the IP cases filed in China. To address
this issue, we collected information for all IP cases filed in the five
provinces of Fujian, Shandong, Henan, Hunan, and Sichuan that
have been made publicly available to construct the second case
sample. Our information source is again Beida Fayi, and we use
IP contract, property, or tort disputes as the search keywords as
before, but also require the cases to be filed and tried in one of
the five provinces listed above, which cover the western, middle,
and eastern regions, and also span northern and southern China. To
allow the comparison between first trial outcomes and appeal rulings, we also limit the cases to those that went to appeals. After
deleting repetitive cases and those without appeals or without
29
137
4
3
1
1
1
55
4
2
1
1
Xizang
3
Shaanxi
2
Neimeng
Hainan
2
Helongjiang
1
Hebei
1
83
66
2
1
Fig. 2. Distribution of first instance cases across provinces (PSC sample).
Sichuan
Shandong
Hunan
Henan
Fujian
0
Yunnan
Zhejiang
Sichuan
Shanxi
Shanghai
Shandong
Liaoning
Jilin
Jiangsu
Hunan
Guangdong
Fujian
Anhui
Beijing
0
1
Guangxi
5
2
Number of cases
50
100
17
Tianjin
Number of cases
20
10
108
18
Fig. 4. Distribution of first instance cases across provinces (five province sample).
54
C.X. Long, J. Wang / International Review of Law and Economics 42 (2015) 48–59
Table 2
Location and plaintiff win.
Defendant location
PSC Sample
Panel A
Same as court
Different from court
Panel B
Same as court
Different from court
Plaintiff location
First trial
Same as court
Different from court
Same as court
Different from court
Total
Appeal
same as court
different from court
Same as court
Different from court
Total
Five provinces sample
First Trial
Panel A
Same as court
Same as court
Different from court
Different from court Same as court
Different from court
Total
Appeal
Panel B
Same as court
Same as court
Different from court
Different from court Same as court
Different from court
Total
Number of
observations
Plaintiff
win (%)
45
40
6
11
102
71.11
60
66.67
90.91
68.63
47
23
2
2
74
63.83
52.17
100
50
60.81
153
152
50
94
449
62.75
55.26
35.05
75.53
65.48
266
123
35
25
449
54.14
53.66
51.43
56
53.9
the PSC case sample and the five-province sample in the empirical
analysis below to address the related issues.
5. Empirical findings
5.1. Empirical evidence for existence of judicial local
protectionism
We now empirically explore whether the court plays a significant role in helping a local litigant win a legal case in China, based
on both the sample of IP cases selected by the PSC and the fiveprovince sample. Using the case outcome measures discussed in
Section 4, we will study whether a plaintiff is more likely to win in
a case filed in the local court. This is a feasible strategy because the
actor sequitur forum rei doctrine is adopted in China, implying that
the trial is normally held in the court local to the defendant. The
exceptions occur when no courts in the defendant’s location have
the jurisdiction over the IP case or when the parties choose to file
the suit in the place of the dispute. Table 2 provides more information on the locations of the relevant parties in the legal cases as
well as their probabilities of winning the cases.
The focus of our analysis is on cases where the defendant shares
the court’s location.6 For the PSC sample, among 85 such cases of
first instance, the plaintiff wins the case with a probability of 71%
when they are from the same location as the court, but their win rate
drops to 60% if the suit is filed in a non-local court. For the 70 such
cases that went to appeals, the plaintiff’s win rate falls from 64% to
52% between suits filed in local courts and those filed in non-local
courts. A simple comparison of numbers thus suggests that going
to court in their own locality increases the plaintiff’s win rate in a
legal case by a substantial margin, as high as 10 percentage points.
Similarly, for the five-province sample in first trials, plaintiffs from
6
This is potentially a selection issue here, i.e., plaintiffs from outside the region
will only sue defendants in the region if they have a strong case (assuming there
is local protectionism). But this will cause a bias against finding the results to be
shown later, thus strengthening our empirical findings.
the same location as the court have a higher likelihood of winning
(63%) than those from different locations (55%). In contrast, the
difference in appeal win rate is not substantial (54.1% vs. 53.7%).
To control for other factors that also affect the plaintiff’s win rate
and study the patterns and causes of judicial local protectionism,
we now turn to an empirical examination of the data using econometric models. We begin with the first instance trials to study how
court location affects the plaintiff’s probability of winning, including only cases where the defendant shares the court’s location.
Specifically, we estimate the following model,
winner plain 1 = ˇ0 + ˇ1 ∗ Same plaincourt 1 + X + ε,
(1)
where winner plain1, the plaintiff win measure in the first instance,
is the dependent variable, while the main explanatory variable
of interest is same plaincourt1, the dummy variable indicating
whether the court is in the same location as the plaintiff. The model
also controls for a set of other explanatory variables, X, while ε is
the residual term. To take into consideration of the national level
changes over time, we include time fixed effects as well, corresponding to the year in which the filing of the case began or ended,
i.e., the beginning year or the ending year, in different specifications. The estimation method is the linear probability model instead
of the logistical model to avoid the reduction in sample size when
the outcome variable does not change along certain explanatory
variables.7
Consistent with other studies on trial outcomes (Zhang and Ke,
2002; Lu et al., 2011), we include in the set of explanatories, X, the
following variables that also affect the win rate of the plaintiff: the
category of intellectual property involved in the legal case (patent,
copyright, or trademark), region where the case was filed (whether
the region is among the coastal provinces in China), identity type of
the plaintiff (defendant), as well as the distance between the plaintiff (defendant) location and the court’s location. The IP category is
included as different types of IP cases may have different win rates
for the plaintiff. Whether the case was filed in the coastal region
may impact the win rate due to regional variations in the degree
of local protectionism, case load differential, and other factors.
Following the conventional division, the coastal region includes
Liaoning, Beijing, Tianjin, Hebei, Shandong, Shanghai, Jiangsu, Zhejiang, Fujian, and Guangdong, while the rest of China are in the
inland region.
For the identity type, we first divide the plaintiffs (defendants)
into firms and individuals and then among firms further divide
them by ownership type to state owned enterprises (SOEs), private
domestic firms, and foreign firms. Clearly, the identity type of the
plaintiff (defendant) has implications for the case outcome. While
one would expect the Chinese legal system to have a bias against
private firms in the earlier years of the reform era, the relationship
between Chinese courts and foreign firms is more complex.8 On
the one hand, foreign firms may be offered preferential treatment
in the legal system, consistent with other preferential policies provided to foreign investors. On the other hand, foreign firms may
experience a greater degree of judicial local protectionism for the
very reason of being foreign. The distance variables are included to
control for litigation costs that the two parties face during the legal
proceedings, with a longer distance between one’s location and the
court’s location implying higher costs. By using Baidu Map that is
7
Reassuringly, we obtain very similar estimates for marginal effects of court location on plaintiff win rates in various specifications using the probit model, although
the significance level is sometimes reduced due to the slightly smaller sample size.
8
In cases where there are many plaintiffs or defendants who have diversified
ownerships, we use information on the party that shares the same location with the
court or has the strongest interest in the law suit.
C.X. Long, J. Wang / International Review of Law and Economics 42 (2015) 48–59
55
Table 3
Plaintiff win rate versus location in first instance trials.
Variables
(1)
(2)
(3)
(4)
(5)
Dep.var. = plaintiff win in first trial
Plaintiff location same as court in 1st trial
0.276*
(0.148)
0.340**
(0.158)
0.401**
(0.166)
0.009
(0.021)
−1.876
(1.171)
0.202
(0.178)
0.007
(0.026)
−1.574
(1.188)
0.288
(0.200)
0.048**
(0.021)
−1.937
(1.205)
0.143
(0.174)
0.303**
(0.138)
−0.341**
(0.169)
0.035*
(0.019)
−0.144**
(0.068)
0.149
(0.148)
0.241
(0.150)
0.357**
(0.176)
0.001
(0.157)
−0.024
(0.141)
0.212
(0.142)
Yes
0.257*
(0.145)
0.014
(0.158)
Yes
Defendant location same as court in 1st trial
Distance between plaintiff and court in 1st trial
Distance between defendant and court in 1st trial
Patent case
24.676**
(10.505)
2.210
(1.450)
−173.615**
(83.361)
27.374*
(15.823)
0.051
(0.136)
Yes
0.010
(0.021)
−1.960
(1.222)
0.366
(0.278)
−0.259
(0.326)
0.338
(0.206)
−0.216
(0.319)
0.194
(0.146)
Yes
Yes
102
0.324
Yes
85
0.415
Yes
74
0.498
Copyright * plaintiff location same as court in 1st trial
First trial in coastal region
Individual vs. firm ownership controls
Dep.var = win%
0.419*
(0.220)
Patent case * plaintiff location same as court in 1st trial
Copyright case
(6)
10.505
(10.752)
−13.347
(10.323)
Yes
Yes
End year FE
Begin year FE
Obs.
R-squared
Yes
Yes
85
0.405
Yes
85
0.453
85
0.389
Notes: The dependant variable win% of Column 5 means damage granted/damage requested in1st trial. Standard errors are in parentheses.
*
Significant at 10%.
**
Significant at 5%.
***
Significant at 1%.
accurate to the township level, we measure the direct-line distance
between any two locations in kilometers.
Table 3 Column (1) presents our baseline estimation results
based on Eq. (1), using the PSC sample. The difference between
Column (2) and Column (1) is that plaintiff and defendant identity
types are measured in individuals versus firms in Column (1), while
in Column (2) the ownership types of the firms are also controlled
for. In columns (1) and (2), the coefficient of the plaintiff location
variable is positive and significant at 10% level and 5% level, respectively. The impact is also economically important, with the plaintiff
having a win rate about 30 percentage points higher in a case filed
in a local court than in a case filed out of town, after controlling for
other factors.
Columns (3) and (4) in Table 3 present additional results supporting the same finding above. In Column (3), we replace the
beginning year fixed effects with the ending year fixed effects, and
obtain similar results as before; while in Column (4), we expand
the sample size by including cases filed in courts away from the
defendant’s location and controlling for an indicator for whether
the defendant’s location is the same as the court. Again, the estimation results similarly show the positive and significant effect of
same location on plaintiff win rate.
We also explore the potential differences in judicial local protectionism among different types of IP cases in Column (5), by adding
the interaction term between patent and plaintiff location as well as
that between copyright and plaintiff location. Although the interaction terms are not significant, they are of the opposite sign of
the plaintiff location coefficient. And the statistical test shows that
while the plaintiff location has a positive effect on the win rate of
trademark cases, the total effect of plaintiff location on a patent
case or a copyright case is non-significant.9 Hence, different from
9
The F-statistic for H0 : ˇplaintiff location same as court + ˇpatent case*plaintiff location same as court
=0
is
0.35
with
p-value = 0.56,
and
the
F-statistic
for
H0 :
is
0.67
with
ˇplaintiff location same as court + ˇcopyright case*plaintiff location same as court = 0
p-value = 0.42.
the case in the U.S. where patent protection is the strongest, local
protectionism is mainly observed in trademark cases in China. This
is most likely due to the relatively low level of IP development in the
country during the sample period, where competition in IP products still focuses on trademarks rather than patents or copyrights.
Finally in Column (6), we replace the indicator for plaintiff winning the case with the ratio of damage granted in the ruling. The
plaintiff’s location being the same as the court increases the ratio of
damage granted by 25%, which is not only statistically significant
but also economically important.
To further test the robustness of the findings above, we now
address the issue of how representative our sample are of cases
nation-wide. First of all, we check whether the cases from Beijing,
Shanghai, and Jiangsu dominate the PSC sample and thus impact the
patterns discovered. Fig. 1 shows that 64 cases out of the total 102
IP cases collected from the PSC Bulletin are from Beijing, Shanghai,
and Jiangsu. To see whether the patterns reported so far are mainly
driven by cases from these three regions, we first delete cases from
each of the three regions above in turn to rerun the analysis. In addition, we separate the 102 cases into the sample of Beijing, Shanghai,
and Jiangsu cases and the sample of cases from other regions, and
then use these two samples to redo the analysis. The estimation
results are presented in Table 4, with Columns (1)–(3) using cases
excluding Beijing, Shanghai, and Jiangsu, respectively, whereas Column (4) using the sample of Beijing, Shanghai, and Jiangsu cases,
and Column (5) using the sample of cases from other regions. As
shown in the table, the effect of plaintiff location remains significant in two of the five specifications, with the magnitude similar to
that obtained before. In the other three specifications, the estimated
effect is in the expected direction with similar estimate, suggesting
that the lack of statistical significance is mainly due to the small
sample size.
We now use the larger sample of IP cases collected from five
provinces to further test the robustness of the empirical findings
discovered above. Table 5 gives the empirical findings based on
this larger sample, where Columns (1) and (2) examine only cases
with the defendant sharing the court’s location in the first trial, as
56
C.X. Long, J. Wang / International Review of Law and Economics 42 (2015) 48–59
Table 4
Beijing, Shanghai, and Jiangsu versus other regions (first instance trials).
Variables
(1)
(2)
(3)
(4)
(5)
Dep.var.=plaintiff win in 1st trial
Plaintiff location same as court in 1st trial
Individual v. Firm
Begin year FE
Obs.
R-squared
0.338* (0.189)
Yes
Yes
60
0.438
0.378*** (0.141)
Yes
Yes
72
0.439
0.201(0.146)
Yes
Yes
71
0.359
0.199(0.168)
Yes
Yes
52
0.547
0.552(0.318)
Yes
Yes
33
0.741
Notes: Samples excluding Beijing, Shanghai, or Jiangsu cases are used in Columns 1, 2 and 3, respectively, sample of Beijing, Shanghai and Jiangsu cases is used in Column 4,
while sample of cases from other regions is used in Column 5. All models control for coastal region dummy, case type, and distance between plaintiff and court as well as
that between defendant and court. Standard errors in parentheses.
*
Significant at 10%.
**
Significant at 5%.
***
Significant at 1%.
Table 5
Sample of five province cases (trials of first instance).
Variables
(1)
(2)
(3)
Plaintiff location same as court in 1st trial
Defendant location same as court in 1st trial
0.123** (0.061)
0.120** (0.061)
Yes
Yes
Yes
305
0.087
0.146**
(0.073)
0.081
(0.076)
Yes
Yes
Yes
305
0.099
(4)
Dep.var. = plaintiff win in 1st trial
Patent case
Copyright case
Individual vs Firm
Begin year FE
Province FE
Obs.
R-squared
0.093** (0.046)
−0.229***
(0.049)
Yes
Yes
Yes
449
0.116
0.092** (0.046)
−0.214***
(0.050)
0.105*
(0.058)
0.114*
(0.061)
Yes
Yes
Yes
449
0.125
Notes: Standard errors in parentheses.
*
Significant at 10%.
**
Significant at 5%.
***
Significant at 1%.
implied by the actor sequitur forum rei doctrine, while the sample in
Columns (3) and (4) includes all cases but controls for the defendant
location.
The coefficient for plaintiff sharing the same location as the court
is positive and significant at 5% level in Columns (1) and (2), a
finding largely replicated in Columns (3) and (4). Furthermore, a
defendant local to the court significantly brings down the plaintiff’s win rate by 23% (Columns (3) and (4)), providing additional
evidence for the existence of judicial local protectionism in Chinese
courts of first instance.
In comparison with the estimated effects from the PSC sample,
the impact found in Table 5 is substantially smaller, which may be
explained by two possible reasons: First, due to lack of information,
estimations in Table 5 do not include as many as control variables
as those using the PSC sample, thus it is difficult to directly compare the estimates. Second, it is also possible that cases with the
most egregious mistakes have been included in the PSC sample, as
reflected in the large and significant effect of plaintiff location on
plaintiff win rate found for this sample. But in our view, the finding
of significant effects of plaintiff location for the more representative
five-province case sample, combined with the relevancy standard
for selecting the PSC cases, provides sufficient evidence that judicial
local protectionism still enjoys substantial prevalence in China.
first trial, they can file an appeal in a higher level court. This may
potentially rectify the problem of judicial local protectionism that
we have observed in the trials of first instance, as the plaintiff who
has grievances could request the upper level court to re-examine
the case. We now empirically test this hypothesis and study the
role of appellate courts in impacting judicial local protectionism in
China.
First, we use the following estimation model to study the potential existence of judicial local protectionism during the appeal:
winner plain2 = ˇ0 + ˇ1 ∗ same plaintiffcourt2
+ ˇ2 ∗ same defendantcourt2
+ ˇ3 ∗ winner plain1 + X + ε
(2)
where winner plain2 is the dummy indicating plaintiff’s win in
the appeal, while same plaintiffcourt2 and same defendantcourt2 are
indicators for whether the location of the plaintiff or the defendant
is the same as the court in the appeal.10 The case outcome from
the first trial, winner plain1, needs to be controlled for, because it
captures information on the strength of the case. Otherwise, the
specification is similar to that of model (1).
More importantly, we test whether the appeals court serves a
remedial role in correcting judicial local protectionism in the lower
5.2. Judicial local protectionism in appeal cases
According to the People’s Court Organization Law of the People’s
Republic of China, if either party is unhappy with the ruling from the
10
We included the defendant location variable to keep as many cases in the sample
as possible. Excluding the small number of cases where defendant location differs
from the court’s location in appeals does not significantly change our results.
C.X. Long, J. Wang / International Review of Law and Economics 42 (2015) 48–59
57
Table 6
Judicial local protectionism in appeals.
Variables
(1)
(2)
(3)
(4)
Dep.var. = plaintiff win in appeal
−0.079
(0.189)
0.004
(0.469)
0.691***
(0.152)
−0.085
(0.180)
0.074
(0.435)
0.733***
(0.135)
Plaintiff location same as court in appeal
Defendant location same as court in appeal
Plaintiff win in 1st trial
0.009
(0.235)
−0.243
(0.441)
0.975***
(0.179)
0.056
(0.262)
−0.546**
(0.259)
Plaintiff location same
as court in 1st trial
Plaintiff win * plaintiff location same as court in 1st trial
Ownership controls
Individual vs. firm
Begin year FE
Obs.
R-squared
0.021
(0.260)
−0.280
(0.473)
0.947***
(0.199)
0.047
(0.293)
−0.528*
(0.278)
Yes
Yes
Yes
Yes
74
0.557
Yes
Yes
74
0.624
Yes
74
0.566
Yes
74
0.628
Notes: All models control for coastal region dummy, case type, and distance between plaintiff and court as well as that between defendant and court. Standard errors are in
parentheses.
*
Significant at 10%.
**
Significant at 5%.
***
Significant at 1%.
court as follows:
winner plain2 = ˇ0 + ˇ1 ∗ same plaintiffcourt2
+ ˇ2 ∗ same defendantcourt2
+ ˇ3 ∗ winner plain1
+ ˇ4 ∗ same plaintiffcourt1
+ ˇ5 ∗ (winner plain1 × same plaintiffcourt1)
+ gX + ε,
(3)
where we add to the explanatory variables the dummy of plaintiff having same location as the court in the 1st trial as well as
its interaction with the plaintiff win in the 1st trial dummy. If the
appellate court does serve the remedial function, we expect to see,
ˇ5 , the coefficient of the interaction term, to be negative and significant. Again, other controls and specifications are similar to those
in model (1).
Table 6 shows results from estimating models (2) and (3) using
the PSC cases, where the first two columns are based on model (2)
and the last two columns are based on model (3). From Columns
(1) and (2), we can see that there is no impact of the appeals court
being in the same location as the plaintiff on the latter’s winning the
appeal. And this pattern remains in Columns (3) and (4), which also
include additional controls. Therefore, there is no evidence from the
PSC case sample that judicial local protectionism also plagues the
appellate courts in China.
In Columns (3) and (4) of Table 6, the interaction term between
the plaintiff’s win in the first trial and it having the same location
as the court in the first trial is both negative and significant. To
illustrate the importance of the interaction term, if the first trial
was conducted in a court outside of the plaintiff’s location and the
plaintiff won the trial, then its chance of winning in the appeal
would be in the mid-90%. But if the plaintiff sued in a local court
and won the first trial, then its win rate in the appeal would drop to
about 40%, with all other factors being equal. This is in support of
the argument that appeals courts play the role of rectifying judicial
local protectionism that plagues lower level courts, which is one of
the official functions an appeal should serve, as stipulated by the
Civil Procedural Law of the people’s Republic of China, Article 170.
Table 7
Beijing, Shanghai and Jiangsu versus other regions (appeal cases).
Variables
(1)
(2)
(3)
(4)
(5)
Dep.var. = plaintiff win in appeal
Plaintiff location same as court in appeal
Defendant location same as court in appeal
Plaintiff win in 1st trial
Plaintiff location same as court in 1st trial
Plaintiff win * plaintiff location same as court in 1st trial
Individual vs. firm
Begin year FE
Obs.
R-squared
−0.506
(0.431)
1.450
(1.404)
1.078***
(0.273)
0.468
(0.424)
−0.631*
(0.362)
Yes
Yes
49
0.667
0.0667
(0.340)
−0.109
(0.613)
0.839***
(0.264)
−0.145
(0.356)
−0.429
(0.341)
Yes
Yes
61
0.598
−0.105
(0.208)
−0.199
(0.361)
1.068***
(0.173)
−0.0218
(0.254)
−0.435*
(0.251)
Yes
Yes
62
0.821
0.141
(0.282)
0.149
(0.617)
1.062***
(0.217)
0.152
(0.328)
−0.954**
(0.398)
Yes
Yes
50
0.760
−0.778
(1.033)
1.778
(1.207)
−0.333
(1.269)
Yes
Yes
24
0.881
Notes: Samples excluding Beijing, Shanghai, or Jiangsu cases are used in Columns 1, 2 and 3, respectively, sample of Beijing, Shanghai and Jiangsu cases is used in Columns 4,
while sample of cases from other regions is used in Columns 5. All models control for coastal region dummy, case type, and distance between plaintiff and court as well as
that between defendant and court. Standard errors are in parentheses.
*
Significant at 10%.
**
Significant at 5%.
***
Significant at 1%
58
C.X. Long, J. Wang / International Review of Law and Economics 42 (2015) 48–59
Table 8
Sample of five-province (appeals cases).
Variables
(1)
(2)
(3)
(4)
Dep.var. = plaintiff win in appeal
Plaintiff location same as court in appeal
Defendant location same as court in appeal
Plaintiff win in 1st trial
−0.013
(0.050)
0.058
(0.071)
0.378***
(0.049)
Patent case
Copyright case
−0.013
(0.050)
0.067
(0.072)
0.383***
(0.050)
−0.051
(0.059)
−0.011
(0.063)
Plaintiff location same as court in 1st trial
Plaintiff win * plaintiff location same as court in 1st trial
Individual vs firm
Begin year FE
Province FE
Obs.
R-squared
Yes
Yes
Yes
449
0.168
Yes
Yes
Yes
449
0.170
0.015
(0.066)
0.052
(0.071)
0.376***
(0.064)
−0.043
(0.088)
0.003
(0.097)
Yes
Yes
Yes
449
0.169
0.020
(0.066)
0.061
(0.072)
0.379***
(0.065)
−0.054
(0.059)
−0.007
(0.064)
−0.054
(0.090)
0.011
(0.099)
Yes
Yes
Yes
449
0.171
Notes: Standard errors are in parentheses.
*
Significant at 10%.
*
Significant at 5%.
***
Significant at 1%.
Combined together, the results presented in Table 6 suggest that
the appellate courts in China are not only less susceptible to judicial local protectionism, but also help to mitigate the problem in
the lower level courts by reversing the rulings in cases that suffer
from such a problem during appeals. But this is a picture painted by
the PSC cases. Are they representative of typical cases adjudicated
all over China? To answer this question, we will next look at the
regional distribution of PSC cases more carefully. And in addition,
we will resort to the five-province sample.
Table 7 presents results from using the same specification as
Table 6 but with various regional samples of the PSC cases. As in
Table 4, Columns (1)–(3) use cases excluding Beijing, Shanghai, and
Jiangsu, respectively, whereas Column (4) uses the sample of Beijing, Shanghai, and Jiangsu cases, and Column (5) uses the sample
of cases from other regions. Similar to the finding in Table 6, none of
these samples show evidence of judicial local protectionism during
appeals. Regarding the rectifying role of the appellate courts, three
samples (in Columns (1), (3), and (5)), all of which include cases
from Shanghai, obtain results showing the reversal of rulings that
may have been contaminated by judicial local protectionism in the
lower court trials. In other words, the previous finding that appellate courts in China can correct the wrongs of lower level courts may
be driven mainly by cases from regions with the highest frequency
of IP cases such as Shanghai.
Estimation results using the five-province sample are provided
in Table 8, where Column (1) gives the baseline specification, Column (2) includes additional controls, while Columns (3) and (4)
further control for the interaction between plaintiff win and plaintiff location in the first trial. None of specifications give evidence
of judicial local protectionism in Chinese appellate courts, which
is consistent with the previous findings. However, there is also
no evidence of the correctional function of courts during appeals
involving potential judicial local protectionism in any of the specifications. Given the much larger sample size relative to those in
Table 4, where small sample sizes may account for the lack of statistical significance, the failure to find significant effects here should
more appropriately be interpreted as evidence for the absent role
of the appellate courts in correcting lower court mistakes.
In contrast to the results in the previous section, where cases
from different parts of China all provide evidence for the existence of judicial local protectionism, the empirical findings in this
section give mixed evidence about the rectifying function of appeals
courts in China. While the findings based on the PSC Bulletin cases
showcase the appellate courts’ corrective roles, the results using
different subsamples of the PSC cases suggest that such roles have
been played with different degrees of success in different regions.
Furthermore, the results based on the five-province sample provide
additional evidence that the rectifying functions of Chinese appeals
courts envisioned by the PSC are not well served nationally.
Thus, the more appropriate interpretation of these results seems
to be the following: The PSC Bulletin cases are selected and published for the very reason that the appellate courts involved in these
cases have served their corrective roles appropriately, as required
by law. As we should not expect all the cases to be solved like
the exemplary cases, it is only natural that we do not observe the
judicial local protectionism bias to be reversed in appeals for the
larger five province sample. This more pessimistic view of the Chinese legal system is also supported by the previous finding that
the reversal of lower court judgments involving potential judicial
local protectionism is largely driven by the sample of cases from
Shanghai and other regions with more IP cases, but absent in the
sample of cases from other regions. Incidentally, the survey that
supports the effective role of the PSC cases in impacting lower court
rulings was conducted in no other place but Shanghai, which is
reputed to have the highest quality legal services and thus may not
be representative of the national average.
6. Conclusion
Most previous studies on judicial local protectionism in China
are either based on case studies from a single location or reliant
on indirect measures of local protectionism. And there also lack
empirical studies on how courts of different levels behave differently regarding judicial local protectionism. Using IP cases from the
Bulletin of the People’s Supreme Court, between 1986 and 2010, as
well as a larger sample of IP cases from five provinces, we empirically study how the plaintiff’s location versus the court impacts the
plaintiff’s win rate in the first trial and in the appeal.
The findings from both the PSC sample (regardless of whether
the sample is from Beijing, Shanghai, and Jiangsu or from the other
regions) and the five province sample confirm the existence of judicial local protectionism in the courts of first instance. Similarly, our
C.X. Long, J. Wang / International Review of Law and Economics 42 (2015) 48–59
failure to find evidence of judicial local protectionism in appeals
courts is robust in both samples. On the other hand, the rectifying
function of the appellate court to reverse the lower court’s incorrect
rulings due to judicial local protectionism is only observed in the
PSC sample, or more specifically, in the sample of cases from Beijing, Shanghai, and Jiangsu, which are the regions with the largest
number of IP case filings and arguably court services of the highest
quality as well.
These results help provide more insights to the relationship
between rule of law and economic development in China. Based
on daily experiences and anecdotal evidence, people tend to conclude that rule of law in China is of low quality. It is thus perplexing
that the country has been able to achieve fast and steady economic
development despite the lack of quality legal protection (Clarke
et al., 2008). The belief of insufficient rule of law has its validity, as evidenced by the existence of judicial local protectionism,
but there also exists correctional mechanisms at the higher level
that are designed to remedy some of the wrongs perpetrated at the
lower levels, as evidenced by our findings.
In our empirical study, we find no evidence of local protectionism during the appeals cases. Furthermore, we find that the
incorrect rulings likely influenced by judicial local protectionism
have been reversed by the appeals courts, at least in the regions
where intellectual property cases are filed with the highest frequency. By overruling the biased judgments made by the lower
court, this thus reduces the damage caused by judicial local protectionism and provides more justice to society. Finally, by presenting
these cases as the exemplary cases for lower courts to study and
follow, the People’s Supreme Court of China seems to have taken as
its primary goal to provide an open, fair, and just legal environment
to help promote the sustainable economic growth in China. Thus
from this perspective, the experience of China’s economic development is more in line with the growth induced legal development
argument made by Clarke et al. (2008).
The approach adopted by the PSC to help improve court quality is similar to the approach of pilot reforms followed by national
adoption the nation’s economic leaders used in the early years of
reforms, i.e., central selection of high quality cases to be followed
by lower courts. While this creates a novel way of generating and
using case law, as our findings based on the five-province case
sample illustrate, there are limitations to the applicability and the
effectiveness to such an approach. While some regions see more
success in following the model cases, other cases lag behind. How
to achieve more uniform improvement in the quality of legal services in China? More research is needed to address this and other
related questions.
Acknowledgement
We appreciate the financial support from the National Natural
Science Foundation of China (Grant No. 71273217).
References
Acemoglu, D., Johnson, S., Robinson, J.A., 2001. The colonial origins of comparative
development: an empirical investigation. Am. Econ. Rev. 91, 1369–1401.
Bai, Chong-en, Du, Yingjuan, Tao, Zhigang, Tong, Sarah Y., 2004. Local protectionism
and industrial concentration in China: overall trend and important factors. China
Econ. Res. 4, 29–40 (in Chinese).
Bai, Chong-en, Tao, Zhigang, Tong, Yueting Sarah, 2008. Bureaucratic integration and
regional specialization in China. China Econ. Rev. 19, 308–319.
Chen, Xinyuan, Li, Mochou, Rui, Oliver M., Xia, Lijun, 2009. Judiciary independence
and the enforcement of investor protection laws: market responses to the 1/15
59
notice of the supreme people’s court of China. China Econ. Quart. 9, 1–28 (in
Chinese).
Chen, Yuefeng, 2011. The legal effect of public report case in the relationship with
the inferior court’s judgment on similar cases. China Legal Sci. 5, 176–191 (in
Chinese).
Chow, Daniel C.K., 2003. Organized crime, local protectionism, and the trade in
counterfeit goods in China. China Econ. Rev. 14, 473–484.
Clarke, D.C., Murrell, P., Whiting, S.H., 2008. The role of law in China’s economic
development. In: Loren, B., Rawski, T.G. (Eds.), China’s Great Economic Transformation. Cambridge University Press, Cambridge, pp. 375–428.
Easterly, W., Levine, R., 2003. Tropics, germs, and crops: how endowments influence
economic development. J. Monet. Econ. 50, 3–39.
Gechlik, Meiying, 2005. Judicial reform in China: lessons from Shanghai. Columbia
J. Asian Law 19, 97–137.
Hall, R.E., Jones, C.I., 1999. Why do some countries produce so much more output
per worker than others? Quart. J. Econ. 114, 83–116.
Hu, Xiangting, Zhang, Lu, 2005. Local protectionism and regional specialization: a
model and econometric evidences. China Econ. Res. 2, 102–112 (in Chinese).
Johnson, S., McMillan, J., Woodruff, C., 2000. Entrepreneurs and the ordering of institutional reform: Poland, Slovakia, Romania Russia and Ukraine Compared. Econ.
Transit. 8 (1), 1–36.
Lee, Pak K., 1998. Local economic protectionism in China’s economic reform.
Develop. Policy Rev. 16, 281–303.
Li, Shaomin, 2004. From relations to rules: a theoretical explanation and empirical
evidence. In: Ham, Chae-hak, Bell, Daniel A. (Eds.), The Politics of Affective Relations: East Asia and Beyond. Lexington Books, Lanham, MD, pp.
217–230.
Li, Shaomin, Park, Seung Ho, Li, Shuhe, 2003. The great leap forward: the transition from relation-based governance to rule-based governance. Org. Dyn. 33
(1), 63–78.
Li, Shuhe, Li, Shaomin, 2000. The economics of Guanxi. China Econ. Quart. Q1, 40–42.
Li, Hongbin, Zhou, Li-An, 2005. Political turnover and economic performance:
the incentive role of personnel control in China. J. Public Econ. 89 (9),
1743–1762.
Liu, Shiguo, 2001. Case law and legal interpretation: the discussion of creating case
law in China. Legal Forum 2, 40–50 (in Chinese).
Long, Cheryl Xiaoning, 2010. Does the rights hypothesis apply to China? J. Law Econ.
53, 629–650.
Lu, Haitian, Pan, Hongbo, Zhang, Chenying, 2011. Political connections and judicial
bias: evidence from Chinese corporate litigations, Working Paper. University of
Pennsylvania.
Lubman, S/, 2006. Looking for law in China. Columbia J. Asian Law 20, 1–91.
Naughton, B., 2003. How much can regional integration do to unify China’s markets?
How far across the river., pp. 204–232.
North, Douglass C., 1990. Institutional Change and Economic Performance.
Cambridge University Press, Cambridge.
Orts, W.E., 2001. The rule of law in China. Vanderbilt J. Transit. Law 34, 43–115.
Pistor, Katharina, Xu, Chenggang, 2002. Incomplete law. Int. Law Polit. 35, 931–1013.
Poncet, Sandra, 2005. A fragmented China: measure and determinants of Chinese
domestic market disintegration. Rev. Int. Econ. 13, 409–430.
Ren, Jianxin, 1991. Report on the work of the supreme people’s court. In: Delivered
at the fourth Session of the Seventh National People’s Congress in April, (in
Chinese).
Rodrik, D., Subramanian, A., Trebbi, F., 2004. Institutions rule: the primacy of institutions over integration and geography in economic development. J. Econ. Growth
9 (2), 131–165.
Rubin, P.H., 1977. Why is the common law efficient? J. Legal Stud., 51–63.
Wang, David T., 2008. Judicial reform in China: improving arbitration award
enforcement by establishing a federal court system. Santa Clara Law Rev. 48,
649–679.
Wang, Zhiqiang, 2005. Case precedents in Qing China: rethinking traditional case
law. Columbia J. Asian Law 19, 323–344.
Yin, Wenquan, Cai, Wanru, 2001. The genesis of regional barriers in China’s local
market and countermeasures. China Econ. Res. 6, 3–12 (in Chinese).
Young, Alwyn, 2000. The razor’s edge: distortions and incremental reform in the
People’s Republic of China. Quart. J. Econ. 115, 1091–1135.
Yuan, Xiuting, 2009. The practice operation and evaluation of Chinese case guidance
system: take the IP cases of people’s Supreme Court bulletin cases as objects.
Stud. Law Bus. 2, 102–109 (in Chinese).
Zhang, Qi, 2002. A comparative study on case law: a discussion of the significance,
institutional basis, and operation of Chinese case law. J. Comp. Law 4, 79–94 (in
Chinese).
Zhang, Qianfan, 2003. The people’s court in transition: the prospects of the Chinese
judicial reform. J. Contemp. China 12, 69–101.
Zhang, Weiying, Ke, Rongzhu, 2002. Reverse choice in lawsuits and its explanation:
an empirical study of written judgments on contract disputes by a grassroots
court. Soc. Sci. China 2, 31–43 (in Chinese).
Zhou, Li-an, 2004. The incentive and cooperation of government officials in the
political tournaments. China Econ. Res. 6, 33–40 (in Chinese).