Why China Companies Are A Litigation Mark (As In Sucker), Part II.

The other day, in a post entitled, "Why United States Lawsuits Against Chinese Companies Are Trending Up. Just Follow The Money," I talked of how U.S. lawsuits against Chinese companies are rapidly increasing. That post posits various reasons why this is the case, focusing mostly on increased US-China trade and on an increase in Chinese companies with U.S. assets worth seizing.  

I just read a very thoughtful post that provides another really good explanation: Chinese companies do not hire the right lawyers. The post is entitled, "The Stakes Are Too High For China Not To Cooperate And Participate In Trade Remedy Disputes, And To Hire The Best Counsel," and though its focus is on anti-dumping cases against Chinese companies, its analysis has a much broader application.

The post talks of how Chinese companies that hire top counsel for their anti-dumping cases fare surprisingly well, while those who hire counsel based strictly on their low fees, virtually never win. The explanation for these disparate results is rather simple:

There is no guarantee, of course, that when a Chinese company spends more money on legal services it will necessarily get better results, but there are market reasons why some lawyers command higher rates than others: their time is in more demand, which means the market for services is recognizing their value. It may seem to a company an important savings to hire lawyers for $50,000 or even $100,000 less than lawyers from firms with greater reputations, but when a $100 million market is at stake, the savings on legal fees suddenly does not amount to that much and do not make sound commercial sense.

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Paying for the best available legal services is always better than trying to get through the case on the cheap, particularly when the cost is compared to what is at stake. It is always better to be flexible about fees because every possible contingency in the case cannot be anticipated in advance, and because there will always be unscrupulous lawyers (as there are unscrupulous businessmen) who will promise more than they can deliver, and will do as little as possible to earn their fees.

The post suggests Chinese companies employ the following tactics/metrics in choosing their United States counsel: 

How can Chinese companies win antidumping and countervailing duty cases? They first need to hire competent U.S. lawyers with experience and proven track records. The homework necessary to choose counsel is not simple, but again not impossible. They cannot listen to lawyers touting their own credentials without proof. They need to ask questions. Their focus, however, should be on the quality of the lawyers and their services, their reputation and their experience. It should not be only on price. Until recently, many trade remedy petitions were brought against merchandise from other countries. Respondents in other countries have never depended so much on the price of legal services the way Chinese companies have done, and there is a contrast in results that suggests powerfully that it pays to pay.

The post then talks of something else Chinese companies need to start doing to improve their chances before U.S. courts and administrative bodies; they need to start recognizing the seriousness of the proceedings:

Second, Chinese companies need to commit to cooperation with the investigating agencies and participation in every phase of the investigations. They need to commit resources and devote themselves to fighting hard to win. They need to consider the potential expense of defending their interests in the U.S. market against the potential value of losing access to the market. They need to think in the medium and long term, for once shut out of the market by an adverse outcome, it could take five years or more (the period awaiting a sunset review of an antidumping or countervailing duty order) to get back in. And they must know that, when their market access is challenged in the U.S., a challenge in Europe likely will follow, and vice versa. The global market means global challenges, and a problem in one place inevitably becomes, sooner or later, a problem in another.

All of the above is completely true. At this point, there is no doubt in my mind that Chinese companies (at least in my experience and that of my firm) generally handle United States litigation matters less effectively than companies from any other country, including those with less wealth and less international experience than China. There are many reasons for this, but until this changes, U.S. companies and lawyers are increasingly going to become aware of how Chinese companies have become litigation marks.  

For a somewhat related post, check out, "Ranking Creditors. China Comes In Dead Last," explaining how American companies put Chinese companies last on their payments list.