From Shanghai to Santa Clara and Back
Intel's Global Reach Poses Unique Legal Challenges — an interview with Jeffrey A. Siebach of Intel Corporation
Benjamin Klafter | University of California, Davis, School of Law
Posted Sunday, May 1, 2005
5 U.C. Davis Bus. L.J. 23 (2005)

Jeffrey Siebach received his J.D. from B.Y.U. Law School and has worked at a number of technology firms including Micron Technology and Lotus before joining Intel Corporation. Mr. Siebach also worked for the law firm of Baker McKenzie in their international offices in Tokyo and Hong Kong. Fluent in Japanese, Mr. Siebach currently holds the position of international counsel for Intel Corporation and manages the company's global legal team while assisting in the development of retail products in emerging markets.

Q: How did you get started in international business law?

A: I went to Law School at Brigham Young and my undergraduate degree was in Japanese. Brigham Young offered me an opportunity to teach Japanese at the university while I was going to law school. One of the challenges of learning a foreign language is that you have to be active in them or you lose them. I was anxious to be able to do that. After graduating from law school, I worked for a US computer company - Micron Technology - who in the late 80s had filed an antitrust suit against Japanese semi-conductor manufacturers. I focused on that for about a year and a half and then the case settled. I had clerked for Baker McKenzie in Tokyo and in Hong Kong prior to graduating from law school, and when the Micron case settled, I decided that at that point it was time to go overseas. I contacted my friends over at Baker McKenzie and joined the firm in Hong Kong. I stayed in Hong Kong for twelve or thirteen years. Part of it was with Baker McKenzie, part of it was with the software company Lotus, and the last six years have been with Intel.

Q: What exactly is your job description at Intel?

A: I am international counsel. My primary focus is on any legal issues that we have outside the US. In addition to that, I have several other responsibilities, one of which is retail products that we are developing for emerging markets. I am also responsible for Intel's manufacturing facilities worldwide.

Q: What is your level of contact with the overseas attorneys?

A: Daily. We also have regional counsels in Sao Paulo, Sweden and Hong Kong. And those regional counsels report to me.

Q: Let's talk about China. Coming from a country with strong intellectual property protections, and moving into a country where such laws are only in their infancy, what are the types of unique challenges that Intel is facing with regards to intellectual property?

A: Intel's challenges are relatively minor. And, I emphasize relatively. If you look at the challenges a software company has in China, they are extreme. As a plaintiff, we have filed our first copyright infringement action for software. That was filed within the last three or four months. That's the first time that we've brought a suit as a plaintiff. We have litigated as defendants a few times. We've had a lot of standard trademark infringement, design copies, and other cases like that. But none of that impact our revenue as software would. Most of what we manufacture is relatively complex - difficult to copy. There was a time at Intel - and this was years ago - that speed was the primary factor when you were selling a microprocessor and the price of a microprocessor varied by the speed. As a result, there were counterfeiters that would buy the slow speed, change the speed to a higher speed, and then sell that at the price for the higher speed. They would get margin that way. But we don't have that so much anymore. The products are different; the packaging and so forth is more sophisticated. We've employed some more tools to try to thwart those pirates. As Intel gets more involved in software, I anticipate more software piracy. But from a hardware standpoint, it's not so bad so far. Will we have patent infringement cases? Probably when we become more aggressive in filing patents there. We file patents there already, but the level of patents that we're filing are relatively sophisticated and thus difficult to copy.

Q: Is there a palpable difference in the legal culture in China? I've read for instance that it can be difficult to get judgments executed in China. Are there systemic differences in the Chinese legal system as compared to ours? And if so, what kind of challenges do such differences pose?

A: Let me tell you about an experience I had and we'll develop that a little bit. Recently, Intel opened a new factory in Western China. Western China is the less developed area of the country. And, I was invited to meet the judges in this province. I went in and met with them and there were probably fifty of them. I would say the average age of each judge was probably twenty-eight, twenty-seven, twenty-nine, something like that. Let me give you another example. I was defending a man in Hong Kong. The charges were coming from a Chinese (PRC) company. Since we needed testimony about PRC law, they brought the head, one of the most senior people responsible for PRC law. This was in 1988 or 1990. They brought the expert to testify about PRC law. As part of the cross-examination, we questioned him about his credentials. In fact, he was a very good Communist member, who prior to being appointed to this legal position, made paintbrushes. He was a craftsman. No legal training whatsoever, but a good Communist party member.

Now, I contrast that with what I see in the year 2004 when these new young judges, who are very smart, have been trained in a new legal tradition. When we compare them to US judges, they may be rudimentary. But compared to where they were, they've made fabulous strides. These guys are very smart; they understand the importance of the rule of law. So I think things are getting much better there. Getting a judgment now is much easier than it was ten years ago, where decisions would be made perhaps on more political basis than on a legal basis. Now, you have people looking more to the law, and these are judges that have gone through law school planning on being judges, very smart young men and women. Executing a judgment is not a lot different than it is here: you get a judgment against someone, they declare bankruptcy, they disappear, and they open up under a different name somewhere else. So I don't know if executing a judgment is uniquely difficult in China. The challenge is having a judge understand the legal issue. Right now, it's very much hit or miss. Sometimes you still get those old guard judges that don't have much legal background, who understand the political winds more than the legal issues and vote on that basis.

Q: Have you encountered corruption?

A: In the places that I've encountered corruption in the legal area, it has not been in China. I have encountered more corruption in other places. When I think of corruption in the legal profession, China does not come to mind. There are other places where that is a more significant problem.

Q: A company of Intel's size would want to maintain some standard practices with regards to contracts and labor law no matter where you are operating. How do you maintain standard practices in diverse legal environments? Especially in China where the labor market is, I imagine, much more rigid? Are there, for instance, elements that you would like to see integrated into all your contracts that quite simply cannot be incorporated?

A: Well there's sort of a hierarchy. We can do business in a country pretty well by offshore contracting. The most important thing to us initially is being able to sell our products. Anything legal that inhibits that goal is an issue for the legal department. If there are administrative or regulatory legal requirements regarding frequency, for instance, as you get more into telecommunications, or artificial trade barriers, then those are issues for the legal department. Those are the first things that we face. Eventually, what Intel does is that they'll invest more in the country. When sales are sufficient to justify a presence there, then we'll start hiring.

Q: Intel is very engaged in policy-making here in the US. To what extent have you attempted to do this in China, with regards to labor law for instance?

A: We don't try to impact the laws in the labor area all that much. In China, you're required to have a labor union and they're required to have an affiliation with the party, etc. Trying to change that would be very, very difficult so what we do in the PRC is that we comply with the framework that's already there. Now, there are other areas related to telecommunications regulations or antitrust laws or sale of goods laws that we will aggressively try to influence. Labor laws really haven't done that much. What we do is we comply in many cases with labor standards that are higher than those required by local laws like, for instance, child labor. We will impose those on ourselves regardless of what the framework is locally. But we don't fight against those labor laws so much. To get someone to change those things is more difficult than some of the others.

Q: With regard to trademark and intellectual property, is it difficult to engage with the government?

A: It depends on the issue. Some of the most frustrating things about doing business in China are also the great things about doing business in China. Because they didn't have the legal tradition, one of the challenges is to keep up with the new laws coming out. This is because new laws are announced constantly. If you look at the reporting services that we subscribe to, they are really designed to tell us these new laws that are coming out because they're changing so rapidly. Antitrust law is being debated right now and we're very engaged in that.

This uncertainty is a challenge. Someone will come to me and I'll have to say, "We don't know what the law is" or "we don't know how the courts are going to treat this." There's a lot of uncertainty. But this is also a great advantage because things aren't set in stone. For example, we'll meet with relevant industries or ministries and we'll say, "Here's what international practice is. Here's what we think you ought to do." We do that directly as Intel as part of industry organizations and through chambers of commerce. We push a lot of different buttons to try to produce change. The uncertainty on one hand is a challenge, but it's also an opportunity to influence a lot of trademark and intellectual property legislation.

Q: Intel is currently involved in litigation in China, is it not?

A: Yes. We are the plaintiffs in an ongoing suit dealing with a hardware/software combination solution that we have developed. The hardware in this case is not as advanced. There is a local company that has duplicated the hardware, which is relatively simple, and is now using our software. We are no longer a unique solution. Our issue then is a copyright infringement. There were several counter-claims made regarding antitrust, etc., but the judge in Southern China dismissed those. What the company called Donjin has done is brought a separate action in Beijing, which has just happened in the last couple of weeks. That action in Beijing challenges the requirement that you have to use our software with our hardware. They are sort of going after the whole shrink-wrapped, software-licensing model that we are using.

Q: How about environmental law issues?

A: One of the most difficult issues in environmental law as you go to lower cost jurisdictions or emerging markets is that there is no environmental law. If I went to the Philippines and tried to find an environmental law specialist, every lawyer would say, "We all do that" because environmental law is not a specialization over there. India is in that circumstance as well. Until those issues become significant, there's really no bar. There's no legal practice in that area. We try to do the best that we can with other non-specialists. You go in and you talk to a generalist who says, "I can tell you what the legislation on environmental issues are, and it's on the front and back of a single sheet of paper." As a corporation you have to decide how you're going to act within that environment.

Q: Let's turn to India for a moment. Have they been more solicitous of the types of concerns that an American corporation such as Intel has?

A: It's a more predictable legal framework in India because it's the British common law basis that we know. One of the things that we try to do is group the countries. Let's take Asia Pacific: Singapore, Malaysia, Hong Kong, India, Australia, and New Zealand. They all have the English common law basis so it's kind of predictable to do business there. India is a more predictable framework for us than China. The system in India is very slow; there are other drawbacks to it, but it is somewhat more predictable than China or Vietnam or Indonesia for instance.

Q: What's the size of operations in China relative to India?

A: We manufacture in China; we do not manufacture in India. We do software development, R&D, etc. in China. We do a lot of that in India as well. In terms of the number of employees, China is exponentially larger since manufacturing is labor intensive, but as far as R&D goes, they're pretty equal. We do the same amount in both of them.

Q: Where else does Intel have manufacturing operations?

A: We have manufacturing in the US, Ireland, Israel, Malaysia, Philippines and China.

Q: Ireland is the only EU country in which you have manufacturing operations. How successful has Intel been in impacting lawmaking there?

A: Not to the extent we'd like. Take the smaller countries where you have a big impact and where they're emerging - let's say in the Philippines or Malaysia, where we employ a lot of people and we influence the economy to a large extent. You can put in a little bit of energy and get a big impact out of that. The EU on the other hand is so large. It's the analogy between a kayak and a battle ship. Trying to move the EU to do something different is turning a battleship. There's a lot of inertia there, a lot of vested interests, a lot of bureaucracy, a lot of weight to try to move. In some of these other counties that are emerging it's easier. China is a big country, but they're much more nimble than the EU. The Chinese will change things and recognize the need to change things. India will also do that. EU, however, is less nimble in that regard.

Q: I know Ireland has been attractive for manufacturing for a number of reasons, a low corporate tax rate being one. Is that going to change as the tax laws within the EU begin to level out?

A: We kind of ran into a problem in Ireland because of our size. Historically, countries throughout the world have offered tax incentives and other things in order to get companies to invest there. Ireland offered us incentives as well. They offered us other incentives to the extent that we planned to build a second fabrication plant there, but the EU turned it down. The EU said that we couldn't do that because of our size. They said that giving incentives to a dominant player is counter to their objectives.

Q: So there have been barriers erected at the EU level?

A: Well, they are not barriers as much as they are taking away incentives. There is a subtle difference there but a significant one for us. Will we build another plant in the EU? Not when there are other countries offering us significant concessions to build elsewhere.

Q: Does Intel currently have any operations in Russia?

A: We have a lot of R&D there. No manufacturing yet.

Q: What types of issues have you encountered in Russia?

A: Again, it's an emerging market from a legal perspective so there's a lot of uncertainty. There are IP issues there as well. What do you really own? What can you license? One of the unique challenges of government-run markets is when you license. The government ownership of these state enterprises is slowly going away. When you want to license software from an entity, who can license that to you? Is it the government that's a counterparty? Is it this collective that's a counterparty? Who really owns the original software? Some of those issues are very difficult, and very hard to resolve. In many cases you advise on what you hope the law would be or what you think the law would be, but you load it up with contingencies because it's really not clear. We've done everything we can to clarify the situation, but at some point you are jumping off the cliff. You're making decisions based on faith or on hope.

Q: Corruption hasn't been an issue there?

A: Corruption is always an issue. For any company that's concerned with compliance with the Foreign Current Practices Act and local laws, that is. It's always an issue, and it's always something that you have to be vigilant about, particularly in the legal department. We always do an extraordinary amount of training. I have lawyers that work for me that do a hundred trainings in a year. Hour long or two-hour long trainings to ensure that we are not participating in bad acts locally.

Q: Have you seen a progression over the last ten years in Russia in terms of the legal culture? As the market first began to open up in Russia, it seemed almost to be a free-for-all. To what extent has that calmed down and has the rule of law within the business community taken hold?

A: I haven't seen any evidence that it's settled down. We fortunately haven't had to go into court for anything. I think Russia is still trying to figure out what it wants to do. We do things in as straightforward a manner as we can. And again, we hope. Companies today that are looking for growth can't avoid hard decisions about where to do business. It's more an exercise in identifying the risk and trying to put up some practices or procedures that will minimize the risk. For instance, Nigeria is a growing market in Africa. Everyone in Nigeria has gotten an e-mail that says my Nigerian friend has a billion dollars that they want to put into your account. Nigeria is very high on the index of corrupt places to do business. We recognize that but we can't avoid doing business there because of the size of their emerging market. We may adjust the kind of business we do there. For instance we may not put a big presence there originally. We may sell to companies who will distribute our product in Nigeria, and over time as we grow and understand Nigeria better we may put a presence there. But we don't put buy-sell entities in countries like that right out of the shoe.

Q: With regards to employing in Russia, to what extent has Intel been able to impact labor law in Russia?

A: We haven't really done that yet at this stage. Let me point out one thing on labor. Intel has a very strange delineation of responsibilities. I have no responsibility for human resources. The human resources department has their own legal department that deals directly with those issues. My guys will handle some of those issues where I have factories only out of necessity. For instance, I have a lawyer on site in Malaysia. It doesn't make sense to have a guy in Hong Kong to do what I can have a guy in Malaysia do, a guy that really knows the system.

Q: Is Russia generally a corporate-friendly place for an American company to do business?

A: Intel is in a very beneficial position when it's doing business in a country like Russia. If you are a small guy going in there, you get pushed around - not to say that we don't - but it's a lot less likely that someone is going to try to extort money out of us than they would a small company. It's also a lot less likely that we could be strong-armed as well. The nature of our business is that we are dealing in intellectual capital, and we sell product as well. That's a lot more straightforward than say if you're trying to get a bunch of approvals to build the next hotel in Red Square. Where you have to frequently work with the government on administrative approvals, those are areas where you can get into corruption very quickly. The construction industry, or anything where you have to get permits to ship this or that kind of waste here or there, are areas where you are dealing with regulators that are much more prone to corruption than just the normal business deal. You and I can do business together in Russia and negotiate on price. If he says I want to sell it for this, then it's just a pricing negotiation, which is a legitimate thing. But if someone comes up to me and says in order to do business here, you have to pay me this amount of money, that's a different thing.

Q: Are there any environmental issues in Russia?

A: For us, we have had none so far because we are not manufacturing there. Until a country like Russia clarifies some of those issues and builds some sort of infrastructure, companies don't make big investments there. An exception to that general observation is China. A lot of people for many, many years made no money in China. They knew they had to be there, but the structure was not there, for instance, to allow them to take foreign currency out or buy from overseas and import equipment. That structure is changing as China recognizes that they need the investment.

Q: Any legislation on the horizon here in the US that Intel hopes to have an impact on?

A: At Intel, we have a devoted department known as Legal and Governmental Affairs (LGA). This group is made up principally of lawyers and lobbyists that do this full time. Four areas of legislation are currently on the agenda: 1) Expensing of stock options, which we unfortunately are going to lose on; 2) Investments in education, which is a priority for us; 3) Lobbying on spectrum allocation in wireless communications, another important area for us; and 4) Tort and class action reforms. We see favorable developments on class action reforms but not so much on tort reform.

Q: Expensing of options has been a big issue for Intel. Would you care to explain Intel's position on this?

A: Intel is one of the few companies that make stock options available to everyone: from executives all the way down. The impact of stock options on our bottom line is huge. And, while there is a division even within Intel on this issue, Intel's overall position is that we are against the expensing of stock options.

Q: What's next for Intel?

A: Market identification. There are two ways to identify target markets. One is by GDP, in which you look at the disposable income for the average person and determine if this is a market into which you should be expanding. The focus there is naturally on high GDP countries. But in those countries the market is already saturated and you will not have as big an impact.

The next factor is population. Here, you're looking primarily at big population centers. Intel recently set up an organization tasked with identifying cool new products for these markets. For example, you have a billion people in India. Education is huge there, but you have a very unreliable power supply. What kind of product might we develop for the wider market? Something that runs on batteries or even solar power? So we look at what type of product they can really use and then our people look at unique ways to fit those needs. Another example is a small village in the Philippines. The likelihood that each person is going to have a PC is nil. But what about a community PC? Something that the community as a whole can use?

Q: What is the big picture for the industry as a whole?

A: You will see product lines diverge more than they have to date. For example, a guy in a rural area of the Philippines doesn't need the latest and greatest computer. What he needs perhaps is just a low power, plug and play device. Maybe he won't even need a plug. Something mobile that works on a car battery may even suffice.

For most companies with a given business model, there is more or less predictable growth. But you need to do something different to get beyond that. In order to break away from that, to tap into the next billion customers, you need to come up with the next big thing. You almost start to have two different companies: one supplying PCs to the GEs and IBMs of the world and another developing more personalized devices for individuals. PCs will really become PCs again rather than just personal versions of the corporate computer.

The biggest challenge for a company like Intel from a legal standpoint is that every country is different. Someone may come to me and ask, "What is the law on X in Asia?" I would say, "you're kidding, right?" You have ten different Asian countries with ten different systems. The EU is in that sense easier: It's a bigger block of countries but a lot more uniform in terms of legal structure.

And that's both the good and the bad of being international counsel. I will do the best I can to minimize risk and try to comply with the intent of the law, but when you are dealing with a country in which only one or two people are determining what that law is, it can be very difficult to predict. As international counsel, you really have your skin in the game. That's why a lot of people don't like being international counsel for a company like Intel. In Asia, for instance, the lawyer is not always seen as an integral part of the company. Companies might say, "Ensure compliance and go away. We'll call you if something explodes." But at Intel, where we really understand that business and law and governance are all so related, they want you to have your skin in the game.