Intangible Property Trade and Lawyer Service in the Era of Civil Code

Second Prize Works of the Second Jinling Lawyers Forum

Abstract: The protection of virtual property in Civil Code is more a declaratory function, and it can not be specified in more extensive intangible property rights. In the practice of modern commercial transactions, intangible property such as network virtual property rights, pollution discharge rights, mining rights, information property rights, fund shares, warrants, depository receipts, asset securitization products, financial derivatives, etc., is complicated, but the legislation is seriously lagging behind, which also causes confusion in the practice of transactions and judicial practice. Although lawyers cannot solve the problem fundamentally from the legislative and regulatory levels, they can still play professional advantages and provide legal services for intangible property trade in many aspects.

Keywords: virtual property | intangible property | commercial transactions | lawyer service

 

In order to meet the demand for protecting personal data and network virtual property in the Internet era, Article 127 of Civil Code provides that "where there are legal provisions on the protection of data and network virtual property, such provisions shall apply."This article is of great significance to protect data and network virtual property as the objects of civil rights. However, due to the logical system of the Civil Code, this article is unable to provide more provisions, and the Civil Code does not make specific provisions on the broader "intangible property rights". However, transactions of intangible property often occur in modern commercial activities, with various types and complex contents. The lagging behind in legislation has caused various kinds of chaos in practice, which also gives lawyers broad space to provide legal services for transactions of intangible property.

I. The Declaration and Reflection on the Protection of Virtual Property under Civil Code

1. The evolution of the draft legislation reflects the declaratory significance of Article 127.

Article 127 of the Civil Code affirms that virtual property shall be subject to legislative protection. However, there are only Article 127 of the General Provisions on virtual property rights in the Civil Code, which does not make specific provisions on virtual property and is more like a declaratory clause in the sense of principle.

The changes of the first and second review drafts of the General Provisions of the Civil Law reveal the legislator's attitude towards virtual property. The first review draft clearly provides that virtual property can be the object of real right, and Article 104 of the Draft provides that "property shall include immovable property and movable property. Where the law provides that specific rights or network virtual property can be the object of real right, such provisions shall apply. "However, the second review draft deletes virtual property from the object of real right and lists the protection of data and virtual property as a separate article, that is, Article 127 of the General Provisions of the Civil Law.

2. Reflection on the Logical System of "Everything Must Have Substance" in Civil Code

The reason for the above controversy is that the Civil Code has always insisted on the logical concept of "everything must have substance".

In the system of property rights in ancient Rome, the Romans designed the system of "property rights" on the basis of the object category. With the establishment of the Civil Code of the Civil Law System, "thing" was included as an important part of the Civil Code, especially Article 90 of the German Civil Code of 1896 stipulates that "what is referred to in this Act is tangible". As a tangible object, it should generally have sensible and controllable properties, whether solid, liquid or gas, which must be controllable by human beings; and it should also be negotiable or transferable, which determines that the tangible object has a certain property value.

For a long time, whether among general civil subjects or among merchants, there was not much difference in the "thing" used for the transaction. "Substance" occupied most or even all of the property used for the transaction. But with the development of the times, the property used for the transaction is not limited to tangible objects, such as intellectual property rights, land-use rights, creditor's rights, equity and other non-tangible objects have long become tradable property.

Therefore, insisting on the civil law that "everything must have substance", there was a "adjustment vacuum" for these intangible property rights. Starting from the particularity of "intangible property", many documents reflect on the property rights system in the traditional civil law.

For example, Professor Wu Handong pointed out that the general theory of the basic classification and system construction of property rights from Roman law to modern law is reasonable, but we should not regard it as a rigid analytical model. Facing the new property phenomena and new forms, the contemporary property rights system needs to make new institutional arrangements. After studying various new types of property rights, the property rights system includes the following three parts: the system of tangible property rights with ownership as the core, the system of intangible property rights with intellectual property rights as the subject, and other property rights systems with creditor's rights, inheritance rights as the content. Among them, under the category of intangible property rights, in addition to intellectual property rights such as copyrights, patents, trademarks, trade names, geographical marks, new plant varieties, integrated circuit layout designs and business secrets, non-material rights such as rights of goodwill, credit rights, rights of image and franchise rights should also be included. Other property rights include creditor's rights, inheritance rights and some property rights with independent meanings, such as equity rights, trust rights and negotiable instrument rights. Some of these rights are petition property rights, while others are special property rights with the attributes of real rights and creditor's rights.

Professors Ma Junju and Mei Xiaying point out that in the relatively stable dual legislative model of property rights and creditor's rights, intangible property is often included in the category of real rights or creditor's rights, which is not conducive to the theoretical research and legislative design of intangible property itself, but also easy to make people doubt or deny the relative reasonableness of the traditional property classification theory. Therefore, legislation should give intangible property a correct positioning. In legislative concept, it should abandon the way of including rules of property laws and rules of debt laws to intangible property, and reexamine the characteristics of intangible property and make specific legislation. It is unreasonable to simply extend the rules of property rights and creditor's rights to intangible property.

II、 "Flourishing Practice" and "Lagging Legislation" of the Rights of Intangible Property

1. Complexity of rights to intangible property

For a long time, the property traded in commercial transactions was dominated by tangible property in civil law. However, after the "technological innovation" which was popular in industry in 1950s, the commercial field began to present endless innovations. The subject matter of transaction with property attribute is no longer limited to the traditional tangible property such as immovable property and movable property. Especially after the 1970s and 1980s, "financial innovation" has developed rapidly, and a series of complex financial products for transaction have emerged.

These new property rights, in specific forms, include the more common bonds, warehouse receipts, bills of lading, stocks, bills of lading, and so on, but also include the more advanced fund shares, forward contracts, futures contracts, warrants, depository receipts, asset securitization products, financial derivatives, network virtual property rights, mining rights, pollution discharge rights, information property rights and so on. These new intangible rights can not be effectively adjusted by applying the system of law in civil law. They are different from the traditional tangible property and have a relatively complex right structure.

From the point of view of attributes, these new intangible property rights have the characteristics of artificial creation, and their extension is open, not bound to the limited types and contents. With the continuous development of commercial innovation activities, their types will be rich and varied, even countless.

2. Relative lag in intangible property legislation

In contrast to the "flourishing practice", it is the legislative pallor. The Civil Code does not extend the object of protection to the broader intangible property rights besides the virtual property. Whether many intangible property rights in practice should be protected by law or not, there will be some controversies in itself. Moreover, although the Civil Code declares the protection of data and virtual property, it does not stipulate more specific rules of universality, depending on specific legislation in the future. However, the existing laws and regulations related to intangible property transactions in China generally have serious problems such as decentralized legislation, acting independently, absence of values, lack of leadership in a group, imperfect standards, unclear positioning, unclear concepts, restraints on concepts, and lagging behind legislation.

Taking emission rights as an example, following the launch of the pilot trading of emission rights, China's local and central governments have successively promulgated the management system of emission rights. For example, several authorities of Shandong Province jointly promulgated the Interim Administrative Measures for Trading of Sulfur Dioxide Emission Rights in the Electric Power Industry in 2007, several authorities of Jiangsu Province jointly promulgated the Interim Administrative Measures for Trading of Emission Rights of Major Water Pollutants in the Taihu Lake Basin in 2010, the General Office of Zhejiang Provincial People's Government promulgated the Interim Administrative Measures for Paid Use and Trading of Emission Rights in Zhejiang Province, the National Development and Reform Commission (NDRC) promulgated the Interim Administrative Measures for Trading of Voluntary Emission Reductions of Greenhouse Gases (Fa Gai Qiu Ge [2012] No. 1668) in 2012, the General Office of the State Council promulgated the Guiding Opinions on Further Promoting the Pilot Paid Use and Trading of Emission Rights in 2014, and in 2020 Qinghai Province promulgated the Rules for Trading of Emission Rights of Major Pollutants, etc.

However, these provisions are generally low-level and lack of coordination. For example, on the issue of market access procedures for mining rights, the Ministry of Land and Resources and the provisions of different places are inconsistent. It is stipulated in the Mining Rights Trading Rules (Trial) (Guo Tu Zi Fa [2011] No. 242) promulgated by the Ministry of Land and Resources that the relevant trading parties first go through relevant trading procedures at mining right trading institutions, and then the relevant trading parties, with transaction confirmation, mining right transfer contract and other materials, go through approval and registration procedures for the mining rights with the land and resources authorities with approval authority. However, the relevant local regulations of Tianjin, Qinghai and other regions add the procedure of prior examination and approval by the land and resources authorities before the transaction procedures are handled by the exchanges; Beijing also put such prior examination and approval inside the mining right exchanges.

Another example is that in the area of financial product trading, as a result of the restraint of the concept of "separate operation and separate supervision", the decentralized regulatory legislative model has led to many financial products being outside the scope of supervision. "China's revised financial laws, such as banking laws and securities laws, have opened the door for the comprehensive operation of financial institutions. However, there are abstract framework provisions that are otherwise stipulated by the state, and most of the financial legislative powers have been vested in administrative departments. A large number of financial products divorced from the law will inevitably be produced by financial innovation. "As commented by some media, "Prosperous asset management activities include wealth management products of commercial banks, wealth management products of securities companies, corporate and partnership funds, wealth management products of fund management companies and trust companies. However, the lack of a unified regulatory standard is not conducive to protecting the interests of investors or establishing a fair competition environment."While the development of commercial practice urgently requires the promulgation of various regulations and rules, the promulgation of these supporting legal systems has been delayed. This serious legislative lag will do harm to the regulation and development of China's financial market, but will not benefit it.

Generally speaking, the deeper reason behind the appearance of lagging legislation is the lack of in-depth legal understanding on the structure of intangible property rights such as "virtual property" and prevention of legal risks in the theoretical circle. There is a lack of abstraction and theoretical upgrading for both academia and regulatory authorities in conducting research or formulating risk prevention measures focusing on a single type of intangible property rights, and it is difficult to innovate and make a breakthrough in regulatory ideas and concepts. This directly leads to the situation such as low-level legislation, decentralized legislation, multiple supervision and treatment of problems.

III、 "Chaos and Confusion" in Intangible Property Trading Practices Involving Virtual Property and Other Intangible Property

The lag and chaos in legislation have also brought about chaos in transaction and judicial practice.

Take virtual property trading as an example. Since 2000, the online gaming industry has developed rapidly, and online gaming has become an entertainment industry along with film, television and music. The transactions of online virtual property are becoming more and more frequent and developed, and the total amount of transactions has been increasing year after year. Since the court of Chaoyang District of Beijing accepted the first case of online virtual property disputes in 2003, there have been many virtual property disputes every year, most of which are caused by the theft of virtual property. For example, in 2004, a case in which two college students in Chengdu stole tens of thousands of online accounts in three hours and were sentenced; in a case in which Anhui Court concluded a virtual property dispute in 2005, a player sued Shanda Network Development Co., Ltd. and returned the best virtual property equipment; at the end of 2006, Shenzhen Public Security Bureau uncovered a case in which China's largest stealing of online virtual property by means of Trojan virus and making profits of over CNY700,000 by illegally stealing millions of QQ numbers, online game accounts and props by means of Trojan virus; in March 2007, Lishui People's Court, Zhejiang Province, rendered "the first heavy trial involving the theft of virtual property"; in February 2008, Shenzhen Nanshan District People's Court, Guangdong Province, made a judgment against 11 persons stealing QQ accounts for "the crime of infringement of freedom of communication".

Another example, many cultural exchange organizations broke through the traditional business scope of physical trading of works of art, quietly carried out the share trading of works of art, causing many social problems, and even appeared the "first case of art trust."Shanghai Cultural Property Exchange, which was first established, adopted the mode of property rights trading, characterized by listing the shared property rights for trading, not being split, and only open to club members, with limited impact. In July 2010, Shenzhen Cultural Property Exchange introduced the first "Yang Peijiang Art Asset Package", but due to the high capital threshold, it has not been popularized. The real change in the traditional business situation, so that ordinary investors can invest in art is Tianjin Cultural Exchange. It adopts the "art share" transaction mode, which directly faces individual trading objects, attracting a large number of private funds to flow in. The transaction threshold was once lowered to 50,000 yuan, which means that hundreds of thousands or even tens of millions of yuan of famous art is no longer the exclusive right of the rich. This "art share" transaction mode was quickly emulated by other cultural exchanges. The essence of "art share" transaction is that by borrowing the trading mode of the stock market, the property right of a piece or a group of cultural works of art or the future cash flow generated based on the property right are equally divided, and then the divided shares are traded in the cultural art exchange, so that investors can enjoy the corresponding rights and interests and enjoy the corresponding returns on the piece or group of cultural works of art by purchasing the corresponding shares from the cultural art exchange. However, due to the lack of relevant policies and laws and regulations, the cultural exchange is "acting independently". The trading rules are completely formulated by the cultural exchanges, or even by their own rules of the game. Some cultural exchanges change the rules without authorization, and others lack the third party supervision over the relevant accounts, so it is inevitable that the interests of investors are damaged and disputes are triggered.

IV、 Lawyers' Legal Service Space and Acts in Intangible Property Transactions

Despite the lag in legislation and the chaos in practice, lawyers can still make a difference. Lawyers are not legislators and cannot fundamentally solve the problems in intangible property transactions such as virtual property through legislation and regulation, but lawyers can comprehensively use their legal knowledge and practical experience to play a role in intangible property transactions. Specifically:

1. Study and help regulate the structure of rights and obligations in intangible property

Intangible property is an "intangible property", which is created by man, has economic value and property attributes, and generally has a relatively complex structure of rights. Compared with the traditional civil law, it has the characteristics of human nature in the creation of rights, the subject of rights, the content of rights, and the exercise of rights has the characteristics of time and space. However, as a kind of non-standardized property that can be traded, its rights and obligations are not established in advance by law, but need to be established by means of contracts or other legal documents. Lawyers, after clarifying their inherent rights and obligations, can assist in the preparation of relevant legal documents, especially by designing rights and obligations to regulate trading activities and reduce trading risks.

In this process, we should pay attention to the following: on the one hand, most intangible property rights structure incorporates simple or complex behavioral factors, and some even incorporates aleatory factors. On the other hand, securities, especially paperless (de-carrier) securities, is an important manifestation of the separation of intangible property from the traditional civil law framework, and "securitization (share)" is often an important way to form intangible property, especially financial products. These two factors inevitably lead to the great risk of intangible property, the price of intangible property often deviates from its value. Therefore, lawyers should pay special attention to the risk prevention measures, some of which are technical, some of which involve mathematical tools, and require high comprehensive literacy of lawyers.

2. Study the Existing Regulatory System to Help Transaction Parties Prevent Legal Risks from Illegal Transactions

Although there is no unified legal regulation, the existing legal system is not completely blank for transactions of intangible property rights. The key point is to recognize the nature of these intangible property and find the closest takeover provisions. In the existing regulatory rules, adjustments to intangible property transactions are subject to prior adjustment and subsequent adjustment. There are four types of "prior adjustment" mode, namely approval, ratification, registration and filing. If such approval fails to be granted, the registration fails to be registered or the filing fails to be filed, the legality of the transaction will often be affected and even criminal legal risks arise. In this regard, lawyers should do something, providing research, consultation and legal analysis, demonstrating the legality of transaction activities, and warning of legal risks in transactions.

3. Resolve various types of disputes arising from transaction processes

There will be disputes arising from transactions, but the causes of disputes over intangible property transactions have their own particularities. Different from ordinary tangible transactions, the following special issues need to be addressed: (1) "Transaction appropriateness", which is the basic legal principle for intangible property transactions and also the legal obligations of the seller of intangible property transactions, the main contents of which include mastering the buyer's information, evaluating whether the buyer is properly qualified for transactions, disclosing information and risk warning, and prohibiting improper sales practices, etc.; (2) "Qualified transaction qualifications of buyers", which requires distinguishing between professional buyers and ordinary buyers, who shall meet different requirements for participating in a specific intangible property transaction; and (3) "Information disclosure", which involves a series of issues such as the content, standards and forms of information disclosure for transactions. Centering on the above special requirements, lawyers may study the cause and liability of disputes, and use basic legal knowledge such as civil law to determine litigation and rights protection programs.

4. Assist to complete procedures for the transaction and carry out liquidation after the termination of the transaction.

Due to the special nature of the right to intangible property, the transaction is usually required to be conducted on special exchanges. Steps to enter the market often involve relevant formalities, some of which require legal opinions issued by attorneys, while others require assistance from attorneys in completing procedures for the transaction.

In addition, an employee entering the exchange may exit from the exchange. Exit from the exchange for various reasons, some voluntarily terminate the transaction, some be punished or passively terminate the transaction for objective reasons. Exiting from a market implies terminating a trading. It involves the handling of relevant rights and obligations, including legal consequences such as return of corresponding property, compensation or compensation for corresponding losses, and provision of alternative solutions. Liquidation is also required for some cases, among which there is broad room for legal services.

 

References

[1] Wu Handong: "On the System of Property Rights — On the 'General Provisions of Property Rights' in Civil Code", in Chinese Law, No. 2, 2005.

[2] Ma Junju, Mei Xiaying: "Theoretical and Legislative Issues of Intangible Property", in Chinese Law, No. 2, 2001.

[3] Feng Guo: "The Trend of Horizontal Regulation of Financial Commodities and the Phased Choice of Financial Legal System in China", in Guo Feng, ed.: Financial Services Law Review (Volume 1), Law Press, 2010 edition, p. 48.

[4] Peng Yong: "The Largest Theft of Virtual Property in China", in Xinhuanet.Com, December 15, 2006.

 

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