April 15th, 2008
03:59 PM GMT
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LONDON, England – I have been to the High Court in London many times over the last two decades: I have seen Richard Branson win the "Dirty Tricks" suit against British Airways, I have seen George Michael lose a contract dispute with Sony, I have seen the Beatles' Apple Records lose to Steve Jobs' Apple (that was the one and only time I laid eyes on the Beatles' legendary and now late confidant Neil Aspinall). I have even been there for the adoption of my two sons.

Star Wars prop designer Andrew Ainsworth.
Star Wars prop designer Andrew Ainsworth.

But the current civil trial in Court 52 pitting a costume maker against the mighty "Star Wars" empire of George lucas is most unusual.

When the hearing began last week, I counted on the front bench a dozen "Star Wars" helmets and off to the side two mannequins, one dressed as a full sized storm trooper. Some were originals taken from the Lucasfilm Archives in Marin County, California.

Sitting before them was the judge dressed formally with his gray wig (wonderfully known in court as "Mr. Justice Mann" - sounds like a cartoon character) and two barristers also donning their gray wigs. That is not unusual in Britain of course, but as the opening statements included references to tusken raiders, storm troopers, even characters some of my favourite cartoons, I knew this was going to be different. And if I was a real "Star Wars" fanatic, I would see this as a once in a lifetime opportunity. After all, the Lucas side was flying in three Academy Awarding winning production designers to testify. The two sides even spent 10 minutes on the first day debating with the judge about how many breathing holes can be seen in the first drawings of helmets. After the judge left at the end of the first day, there was then a spat over which helmets should be labeled and displayed for the judge. The issue being the shape of a mohawk on the back of one helmet that I don't even remember from the films.

The case is self is serious for one man. Andrew Ainsworth, of Shepperton Design Studios, made the original helmets for the first film back in 1977. He started to make replica helmets in 2004 from the original mould which sat in the basement of his west London studio for nearly 30 years. His Web site, sdsprops.com, offers replica helmets for up to $1,000.

Lucasfilm accuses him of violating its copyright. Its lawyer said in his opening argument that Ainsworth manufactured the helmets based on detailed drawings and paintings sent to him through a costume designer. Ainsworth says he made sufficient and unique changes to the original design so that he should own the copyright.

The Lucasfilm barrister made the point that all these bits in front of him were more than movie props. "There are no helmets, there is no armour." His point: this was intellectual property.

Mr. Justice Mann, the same judge who ruled in favour of Apple Computers (he had to confess in that case he owned an iPod - he has not disclosed while I was there whether he was a "Star Wars" fan), will have to decide who owns the rights to the helmets.

Ainsworth wants a slice of the $12 billion Lucas has made just from the products sold around the six films. The question is, do freelance workers on projects retain the rights to their work, if there is no contract (as is the case here)?

This is Ainsworth's last chance really to tilt at the Lucas empire. He's already lost this case before a California judge in 2006 and he nearly went broke defending himself then. His London lawyers are working on a no-win-no-fee basis. Not a problem for Lucas of course.

 

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April 15th, 2008
12:49 PM GMT
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HONG KONG, China – Americans are used to hearing about the growing influence of China. Every week seems to bring another screaming headline about how the communist nation is an economic juggernaut set to dominate the world. Yet the country may be in danger of losing its competitive edge. Over the past two decades, China has transformed itself into a manufacturing machine. The country has been able to convince companies to set up factories there with its cheap labor, huge market potential, and business-friendly rules. Chinese manufacturers have been churning out everything from T-shirts and toys to television sets for cheap, helping to keep global consumer prices down. These exports have been fueling China's economic boom, accounting for roughly 40 percent of gross domestic product.

New labor laws are likely to make China less competitive.
New labor laws are likely to make China less competitive.

However, soaring costs are now threatening China's manufacturing might. Prices of fuel and raw materials are up, eating into manufacturers' dwindling profit margins. Surging prices of food staples such as pork have propelled Chinese inflation to an 11-year high, driving up workers' wages. Wages, by some estimates, are already growing by up to 30 percent every year as companies compete for skilled labor.

In addition, a new labor law, requiring stronger employment contracts, is complicating the hiring and firing process for manufacturers. A dispute arbitration law comes into effect in May. Employers say the new laws restrict them from laying off substandard workers even in times of economic difficulty. They say the rules shifts the bargaining power in favor of employees at a time when factory owners are already facing labor shortages and the possibility of a U.S. recession. These laws, combined with tougher environmental standards, higher corporate taxes, and an appreciating Chinese currency - which makes goods from China more expensive overseas - are adding to manufacturers' financial woes.

These changes are due largely to the Chinese government's recent campaign to start prioritizing human welfare over speedy industrial growth. For decades, authorities emphasized the need for rapid economic development, often overlooking poor working conditions or pollution. The new labor and environmental policies are meant to address those problems, by prodding manufacturers into better corporate behavior. Beijing authorities are also looking to encourage Chinese manufacturers to move away from producing basic goods towards advanced products. They want China to follow in the footsteps of Japan, South Korea, or Taiwan and step up the global manufacturing ladder.

Yet China may not be ready for this economic transition. Unlike its exporting Asian rivals, China has to consider the welfare of over a billion people, many of whom are still unemployed. Low-end manufacturing is a labor-intensive industry, requiring tens of millions of workers. A shift of support away from this sector could lead to an unwelcome loss of jobs at a time when the government is desperately trying to raise the standard of living for the nation's poor and prevent social unrest.

China's economy, though growing fast, is also said to be at a less developed stage than the economies of Japan, South Korea, or Taiwan. Some pundits say consumers there had greater purchasing power than the Chinese do now, allowing governments to rely more on domestic spending as a driver of economic growth. China is in the midst of deploying the same tactic - encouraging citizens to shop - yet the average Chinese consumer is still inclined to save.

Moreover, the competitive environment for countries has dramatically changed. Companies can open and close factories more swiftly than they have been able to in the past as governments compete aggressively to attract investment by offering tax breaks and other financial incentives. In other words, nations can gain and lose competitiveness more quickly than in years prior.

China has already started losing thousands of manufacturers. According to an industry body, the Federation of Hong Kong Industries, over 10-percent of the 70,000 factories operating in the Pearl River Delta, the country's manufacturing belt, will shut their doors this year. Some manufacturers are investing heavily in new equipment and technology, thereby reducing their workforce, but many are moving operations to lower-cost countries such as Vietnam. Beijing's frequent trade rows with Washington are also prompting manufacturers to look to diversify their production bases. Some U.S. politicians, fairly or unfairly, criticize the Chinese for their safety standards and their currency, the yuan. These lawmakers argue the yuan is artificially cheap, contributing to America's ballooning trade deficit.

However, that criticism may soon subside. With the threat of inflation growing in China, authorities there have little choice but to allow the yuan, which only de-pegged from the U.S. dollar in 2005, to appreciate further. A stronger yuan would help reduce import costs and curb economic growth by muting demand for Chinese goods. China's efforts to protect workers' rights and the environment could also silence Beijing's critics in Washington. And though China will likely remain a formidable player in manufacturing due to its economies of scale, the country is no longer the mecca for manufacturers it once was. Other nations stand to benefit if investment is diverted away from China.

China, in the coming years, may appear to be less of a threat to the U.S. economy than it is today.

Watch my report on China's economic shake-up

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