Chinese Law Prof Blog

Editor: Donald C. Clarke
George Washington University Law School

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Monday, June 13, 2005

Microsoft, China, and Legal Realism

An article in the June 10th Financial Times ("Microsoft bans 'democracy' for China web users") reports in part as follows:

Microsoft's new Chinese internet portal has banned the words "democracy" and "freedom" from parts of its website in an apparent effort to avoid offending Beijing's political censors.

Users of the joint-venture portal, formally launched last month, have been blocked from using a range of potentially sensitive words to label personal websites they create using its free online blog service, MSN Spaces.

Attempts to input words in Chinese such as "democracy" prompted an error message from the site: "This item contains forbidden speech. Please delete the forbidden speech from this item." Other phrases banned included the Chinese for "demonstration", "democratic movement" and "Taiwan independence".

The joint venture operating the portal, Shanghai MSN Network Communications Technology (in which Microsoft holds a 50% stake), stated that "MSN abides by the laws and regulations of each country in which it operates", and that users of MSN Spaces were required to accept the service's code of conduct, which forbids the posting of content that "violates any local and national laws". The FT article then noted that "there is no Chinese law that bars the mere use of words such as democracy".

It's true that there is no such statute or, to my knowledge, any other kind of regulation passed by an official government body. But is that the end of the story? In The Path of the Law, Holmes viewed law as "the prediction of the incidence of the public force through the instrumentality of the courts". And in The Bramble Bush, Karl Llewellyn said that "what officials do about disputes is . . . the law itself". There is a vast area of rules, customs, and practices in China that, constitutionally speaking, don't amount to law, but that are administered by state and quasi-state (i.e., Party) officials in a semi-regular way and are unquestionably backed ultimately by the coercive power of the state. Control over information is a key part of this area. Maybe we should just consign this whole territory to the field of non-law, but it seems more realistic to me simply not to confine ourselves to the constitutional definition.

The question has practical consequences. In Delaware, where most big U.S. multinationals are incorporated, it is a breach of a director's fiduciary duty to permit a company to engage in illegal activities and thereby expose it to liability. If Microsoft rejects the Holmesian view of law and allows its Chinese portal to do anything not forbidden by formal government regulation in China, and as a result is shut out of China and suffers losses, will Microsoft shareholders be comforted to hear the explanation that it was all technically legal?

There is another side to this coin as well. The Chinese-Chinese-Foreign structure for telecommunications projects, while perhaps technically in violation of various rules, was (I would argue) quite lawful under a legal realist view of Chinese law: the central government at the highest levels knew exactly what was going on and permitted it to continue. Later the government changed its mind and shut down the CCF projects. If a company lost money as a result, should the directors be liable on a theory of condoning unlawful activity?

I don't think so, but frankly I'd rather be the plaintiff's lawyer in a U.S. court -- while the defendants have to philosophize about legal realism without seeming like sophists, all the plaintiffs have to do is to say, "What part of 'illegal' don't you understand?" The result is that considerations of U.S. litigation may drive U.S. companies to observe rules in the Chinese legal system that, from a legal realist perspective, aren't really legal rules, and that nobody -- not even the Chinese government -- wants or expects them to observe.

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