So before anyone accuses me of being angry, petty and spoiled, let me flat out say that I cop to all of those things.

But here goes.

I am Starwood Platinum — Starwood’s highest level of loyalty in its frequent stay program. According to Starwood, this means the following:

Our highest level, Platinum, is reached after completing 25 eligible stays or 50 eligible nights in a calendar year.

As a Platinum member, you’ll receive all the benefits of Preferred, plus much more: upgrades to best available room at check-in, including Standard Suites.

Our signature Platinum Concierge service to help you arrange just about anything regarding your visit. It’s service tailored to your needs.

Now let me tell you about my last stay at the Beijing Sheraton Great Wall.

I booked three rooms. One for co-blogger Steve Dickinson, one for me, and one for Matthew Dresden, another China lawyer at my firm. When I arrived, I learned that neither my room nor Steve’s room had wireless internet. This was not a problem for Steve because he has a MacBook Pro and so could use the wired network. I travel with a MacBook Air (I love it; it truly has 14 hours of battery life!) and it has no ethernet port. This meant that I needed wireless internet. I was told that to get wireless internet I would need to pay about $100 a night more to upgrade to a suite. I pointed out to them that if there is a suite available I am supposed to be upgraded to it for free in any event, but they wouldn’t budge. So I signed up for the suite. Not an auspicious beginning, and one that turned out to be rife with foreshadowing.

Matthew came a few days after Steve and me, and he brought his wife and his three year old. Steve and I ran into the three of them while they were incoming and they looked exhausted. Flying from Seattle to Beijing with a three year old (heck, even without a three year old) can do that to you. It was about 7 pm and Matthew went with his family to his “non-smoking” room. The room reeked of cigarettes so Matthew requested a new room, which he was given.

Matthew and his family were soon asleep. Big mistake.

Maybe two hours later Matthew heard what sounded like someone coming into his room. He looked up and standing there was a Chinese businessperson, in a suit and tie. He mumbled something in Chinese (Matthew is fluent in Chinese but not so much in this sort of situation) and then scurried out. Matthew got up, double-locked the door and went back to sleep. His family did the same.

Maybe twenty minutes later, a peeved front desk person called Matthew to tell Matthew that he didn’t have a reservation for his room and that he didn’t belong there. Matthew, in late night Chinese, made clear that neither he nor his wife and kid would be moving.

I have never heard of anything like this, have you?

But we’re not done yet, as this is the Sheraton Great Wall….

On check-out day (Steve and I stayed five nights, Matthew and his family stayed three), Steve left early because he needed to go to Shanghai to meet with a client. Matthew and I sought to check out at around 9 am because we had a late morning Shanghai flight. I sought to pay for all three rooms but asked that the hotel not cancel access to Matthew’s room until noon (check-out time) so that his wife and kid could stay there until then. A relatively simple request, one would have thought.

But no, this is the Sheraton Great Wall.

The front desk person looked at me like I had asked him for his first born. He said nothing. For a long time. Finally I asked him to check us out as we had a plane to catch. He said that he was concerned about keeping the room open because of the mini bar. I then looked at him like he had asked me for my first born. But instead of waiting a long time, I rather quickly pointed out to him that if Matthew’s wife should go crazy on the mini-bar during the next three hours, the hotel could charge the plunder to my credit card. He again gave me a long look. This time rather panicked.  His look was one of not knowing what to do and not really having the authority to do anything. Should he take me up on my eminently sensible suggestion or should he follow orders and treat a guest like pond scum? I made very clear that we didn’t have all day and that we had a plane to catch.

He then called on someone with apparently greater authority and she came up with the brilliant idea of letting Matthew’s wife and three year old stay in the room a few more hours, but on the condition that the mini bar be locked. I was in too much of a rush (checking out by this time had already taken more than 15 minutes) so rather than pointing out how crappy the service had been and how ridiculous this was, I assented, then paid and left.

When I got back to the US, I wrote Starwood and ranted about the treatment we had received. In response, I got an email from someone at the Sheraton Great Wall, offering her apologies and asking that I stay at the Sheraton Great Wall the next time I am in Beijing. No mention of why they had charged (overcharged?) me for my room and no mention of any sort of freebie.

I wrote her back and asked her why in the world I would stay at the Sheraton Great Wall ever again when the service is so bad there and all they offer me to remedy that is an apology. She then wrote me and offered me an upgrade the next time I go. In other words, after all this, they are offering me exactly what I deserved all along.

So why did I write this post. Two reasons, actually. One because I am angry, petty and spoiled.

The other to highlight how China still has trouble getting things right. Good hardware, bad software, as people always like to say.

Now before anyone points out how ridiculous it is for me to use one hotel to describe an entire nation, I should say that I virtually always experience a number of things like this every single time I go to China. I should also say though that the number of these things does seem to decline with every visit.

Oh, and in all fairness to Starwood, its American side eventually felt compelled to step in and make things right by giving me a bucket-full of points.

What do you think?

A few months ago, co-blogger Steve Dickinson and I went on an extended  legal/business trip to Ho Chi Minh City and Hanoi, during which we met with around a dozen Vietnamese lawyers. One of the questions we asked nearly all of these lawyers (mostly because we kept getting different answers) was “what should we be putting in our contracts with Vietnamese companies, by way of a venue provision?” In other words, which of the below options would be best for our mostly American (with a smattering of European and Australian) clients:

  1. Litigation in the courts of the home country of our client.
  2. Litigation in the courts of Vietnam.
  3. Arbitration in Vietnam.
  4. Arbitration outside Vietnam.
In typical lawyer fashion, we decided that it depends.
Which is why we are writing this post as the facts and our analysis and our conclusion hold equally true for China.
Each of the above options has its pluses and its minuses and picking the right venue truly does depend on the specific situation, both for Vietnam and for China.
We will go through each of the options, highlighting each of their major plusses and minuses.
  • Litigation in the home country (within America or Europe or Australia) has the big plus of providing to the home company its greatest chance of prevailing. Litigation in America, Europe and Australia also tends not to require a large upfront filing fee/arbitration fee. But the downsides almost always outweigh the plusses, with the biggest downside being that neither Vietnam nor China will enforce the court judgments of most foreign countries. So if you are suing a Chinese or a Vietnamese company overseas and you prevail, you likely will have no means for collecting on your judgment/enforcing your judgment in either China or Vietnam. If the Chinese or Vietnamese company has assets in a country that will enforce such a judgment, then it is a different story, but that is rare. We only rarely write contracts with Chinese or Vietnamese companies that call for litigation outside of China or Vietnam, respectively. It also bears mentioning that litigation is public and has the potential to be the most expensive option of all.
  • Litigation in the courts of Vietnam or China. The biggest plus for litigating in a China or a Vietnam court is that the courts in both countries are best equipped to enforce a judgment, be the judgment a monetary one or one requiring the Vietnamese or Chinese company to do something, such as stop violating intellectual property rights. The biggest downside of the courts of both Vietnam and China is that they tend not to be well equipped for handling complex commercial matters and they are sometimes biased against foreign companies.  These negatives are much greater in Vietnam than in China and for that reason our China contracts far more often call for litigation in China than our Vietnam contracts call for litigation in Vietnam.
  • Arbitration in Vietnam or China. The biggest plusses for arbitrating in Vietnam and China are that it is quite possible to have good arbitrators, have an arbitration in English, and have good chances of enforcement. The minuses are that it is also quite possible not to have good arbitrators and to have an arbitration in Chinese or Vietnamese. The costs can also be high and enforcement (particularly of a non-monetary award) can be slow. The other day a China lawyer proudly told me that he never lets his clients agree to arbitration within China. The reality though is that Chinese companies (especially SOEs) are increasingly mandating in-country arbitration (this is also true of Vietnam). If you are going to do an arbitration in either China or Vietnam, it is absolutely essential that your arbitration provision be written so as to avoid the numerous pitfalls possible with this.
  • Arbitration outside Vietnam and China. The biggest plus with this is that you can choose wherever you want (Hong Kong, Singapore, Geneva, New York, Toronto, Sydney, Stockholm, wherever) and you can fairly easily get great arbitrators. The biggest minus (truer of Vietnam than of China, but true of both) is that enforcement of a foreign arbitration award can be slow and, even worse, can also be spotty. Be very careful here in that both Vietnam and China prohibit foreign arbitrations of certain disputes.
My law firm has written contracts providing for all of the above, depending on the confluence of the facts. There are no hard and fast rules covering every situation when dealing with either China or Vietnam.

It is common to read articles with statements like this: “Contrary to popular belief that enforcement of arbitration awards in China is very difficult, statistics show that less than 10% of arbitration awards are set aside by Chinese courts”.

This is very misleading. Talk to those who actually work on arbitration enforcement and the picture is reversed: most awards are settled rather than enforced, and although courts hardly ever set aside awards, they do nothing at all – which of course favors the Chinese party.

It really does just depend….

 For more on litigation versus arbitration, check out the following:

Not easy issues.  What do you think?

Law schools want money. Law schools make money off their tuition. This means law schools want as many qualified students to enroll (within limits, of course) and this also means that they do not want their enrolled students to drop out. Law schools oftentimes try to entice students to enroll in their schools and to stay in their schools by touting what law students find sexy. Law students often find international law sexy. Law schools often tout their international law courses/programs and tout an international law career path so as to appear sexy to their students.

The above poses problems, mostly centered on the fact that there are incredibly few international law jobs for recent law school graduates. Incredibly few.

Let me explain, using the Seattle lawyer job market as the example.

First though, let me give you a greatly oversimplified primer on American law firms. There are the mega firms that do high level business work and there are the boutiques that do high level business work. The boutiques tend to be made up largely of lawyers who once worked at the mega firms. For the most part, only these firms do international business work. Even in a very international city like Seattle, there are really only a handful of firms that truly do much international legal work.

Now let me give you a greatly oversimplified primer on the hiring practices of the mega firms and the high level boutiques. These firms are obsessed with hiring people with high grades from highly rated law schools. Why? Because those “numbers” are the easiest way to “grade” potential lawyer applicants. Is this the best way to grade potential applicants? No, but it is the fastest and the easiest and if you are looking at a stack of 500 resumes and 250 of the people behind them have done amazing things with their lives and seem like truly stand-up people, you need to do additional filtering. This means that these law firms filter down to the ten or twenty they will interview by taking only really good students from the top law schools and maybe only the top 5-10% from a mid-ranked law school.

Here is where the problem arises. Since nearly all international legal work is done by the mega firms and the high end boutiques and many mega firms do not do much (if any) international law and hardly any boutique law firms do any international work, this means that law firm international law jobs are going to be limited only to the best students at the best schools.  On top of this, many (most) big law firms do not have recent law school graduates work on many (or any) international law matters. The feeling is that young lawyers must first become good at corporate law or tax law or dispute resolution or labor law or IP law or whatever before they get tasked with the additional layer of complexity of working on an international matter.

What the above means in real life for law students seeking an international law job with a law firm is that their class rank/school rank is going to be absolutely critical in determining their chance of getting an international law jobs and that even top ranked students from top ranked law schools with fluency in an important language for business are not likely to get an international lawyer job at a law firm right out of law school.

Now to the real point of this post. Too many law schools either intentionally or negligently put into the heads of their students that getting an international law job is no more difficult than getting any other law job.

From my perspective, I feel as though the law schools prefer to leave it up to people like me to burst their students’ bubbles and I have done that more than once. And though I do not enjoy it, I take a certain pride in it, because I believe that by doing so I am helping young lawyer wannabes, not hurting them.

One example highlights my myth busting work. Many years ago, I gave an informational interview to a middle of the class student from a law school ranked in the mid 100s about international law jobs at law firms in Seattle. I met with this student because I am friends with one of her professors and he really wanted me to speak with her. At our meeting I learned that she was fluent in French and was looking for a job in Seattle doing international law involving France. I was blunt, and I told her the following (note that I was less blunt than appears below, but the below has any niceties removed):

  • If we added up all the Seattle-France legal work done by all of the law firms in town I doubt there would be enough work to keep one lawyer busy full time.
  • I do not believe there is a single law firm in town that will view your fluency in French as a plus factor in deciding whether to hire you. In fact, if you emphasize your desire to do France work, I think most firms will consider that to be a negative because they will think that you are more interested in dreaming about France than in doing the nitty gritty legal work the firm generates.
  • What law firms in town do international law? I mean really do international law, not just mention it on their website?

We then talked about the three or four law firms in Seattle that actually do a decent amount of international law and all but my own law firm were mega firms. We then talked about how these firms virtually never hire middle of the class students from middle to lower tier law schools. Sorry, but they just don’t.

By this time, she was convinced that writing Seattle law firms for an international law job was not going to work (I also learned that she had been doing that for six months and getting nowhere) and so we then started talking about her real world options.

And on that, I had this to say:

What you need to do is get the best job you can. Forget about international. Focus on getting a job that will teach you how to be a good lawyer and that will put food on your table. Then after you have been in that job for a year or two, start figuring out how to “make it your own.” And by making it your own, I mean how you can mold it to suit what you really want to do. If you don’t actively mold your work, it will get molded for you and then one day you will wake up as so many lawyers do and really hate your job.

If you find yourself doing dispute resolution and you are enjoying it but you still want to be involved with France you do whatever you can to try to get dispute resolution work that involves France. How do you do that? You do that by educating yourself on French business, French law, French disputes, French anything. And you do that by getting to know every single French person in whatever city you are in and you get to know the French Consul and you get to know French lawyers in France and elsewhere and you write about dispute resolution involving France, etc.

So long as you are doing a good job with your law firm’s core work, they will likely be fine with your making efforts to bring in France related work. Small firms generally are happy to bring in whatever good work they can, but do not expect anyone there to help you much in bringing in the French work because they both won’t know how to do that and they won’t have time to do that and they won’t really care about it the way you do. And if you are doing corporate work, the same thing holds, but for corporate work.

A year later she wrote me a thank you email that said she was in a job she very much liked in a good-sized city doing corporate work for small businesses and that once she was more comfortable with the legal and client aspects of that work, she was going to start working on trying to position herself as the French expert in her city.

Because that is usually what it takes.

For more on what it takes to become a China lawyer/international lawyer, check out the following:

What do you think?

Just came across an interesting post with a not so interesting title on the China IPR Blog: IP Developments in Beijing.  The post starts out discussing how “due to the rapid increase in IP cases in the Beijing Number 1 Intermediate Court, particularly IP cases involving patent and trademark validity, the Beijing Intermediate Court will split its Intellectual Property Tribunal in two” with the number one IP Tribunal hearing mostly trademark and unfair competition cases and the number two IP tribunal hearing mostly patent and copyright cases.

The post then notes that the Beijing court (which hears about 10% of all China IP cases) has seen its case load increase from “4,748 cases in 2008 to 11,305 in 2012, an increase of nearly 150%,” with copyright cases representing about half the total.

This is important for foreign companies doing business in China and here’s why.

  1. Rational human beings do not generally spend money on something that is not going to bring them any benefit.
  2. Bringing a lawsuit in China always costs money (China court filing fees tend to be fairly high), oftentimes a relatively large amount of money.
  3. Chinese businesses tend to be made up of rational human beings who understand the value of an RMB.
  4. Chinese businesses must believe that they can get the Beijing IP court to give them redress for alleged IP infringements or they would not pursue the lawsuits.
  5. Chinese businesses must, in increasingly large numbers, believe that they can get the Beijing IP court to give them redress for alleged IP infringements or they would not be increasing the number of IP lawsuits they are pursuing.
  6. Chinese businesses are almost certainly correct in their belief that suing before the Beijing IP court will give them redress.
  7. If Chinese businesses are correct in their belief (and they almost certainly are, see number 6 above), that means that IP enforcement, at least through China’s courts is improving.

Independently of the above, you would have a tough time finding a China lawyer who does not also believe that IP enforcement in China is improving, particularly with respect to trademarks.

IP enforcement/IP protection is improving in China for two main reasons.  First, Chinese companies and foreign companies alike are now realizing that it makes sense for them to register their trademarks, copyrights and patents in China so that they have an opportunity at being able to protect them (in the courts, among other places).  And two, China’s courts are increasingly realizing the importance of protecting IP in China, largely because Chinese companies increasingly want them to grant IP protections.

What this all means for those of you doing business in China is that you too should be jumping on the IP registration bandwagon.  For more on protecting your IP in China, check out the following:

  • How To Protect Your IP From China. Part 2. What we, as China lawyers, look at in trying to protect our clients’ IP from China and what you, the company, should be looking at and doing to protect your own IP.

What are you seeing out there?

I wrote this post in April of last year and while going through draft posts just realized that I failed to post it back then, and so I’ve updated it and I am posting it now.

I get at least twenty emails every week from law students/young lawyers expressing interest in becoming an international lawyer (or a China lawyer) and asking essentially what courses they should take to achieve that goal. My response is always something like the following:

First, do what it takes to become an excellent lawyer, then focus on the international side. In the meantime though, get fluent in a language that matters to you and make yourself international by traveling and by reading.

In other words, get educated, get smart, and get international. Not terribly helpful, I know, but true.

Last April I read an article that really resonated for me. The article was written by William Henderson, a professor at the Indiana University Maurer School of Law and one of the most knowledgeable people alive on the legal profession. The article is entitled, The Fromm Six, and it sets out a “competency model for law students called the Fromm Six.

The article starts out with the following background:

One of the greatest people in legal education that you have never heard of is a man named Leonard Fromm. Fromm served as Dean of Students at Indiana University Maurer School of Law from 1982 to 2012. On February 2, 2013, Dean Fromm passed away after a relatively short battle with cancer.

I want to discuss an innovation that Dean Fromm contributed to legal education — a contribution that, I predict, will only grow over time. This innovation is a competency model for law students called the Fromm Six. But first, let me supply the essential background.

After several years in counseling and adult education, Dean Fromm joined the law school in 1982 to preside over matters of student affairs. Over the course of three decades he quietly became the heart and soul of the Maurer School of Law. Dean Fromm was typically the first person that new students met during orientation — the law school administrator who completed character and fitness applications for state bar authorities and the voice that called out their names at commencement (with an amazing, booming tenor).   During the three years in between, Dean Fromm counseled students through virtually every human problem imaginable. His most difficult work was done in his office with his door closed and all his electronic devices turned off. It was private work that was not likely to produce much fanfare.

*   *   *   *

One of the cumulative benefits of Dean Fromm’s job was the ability to track the full arc of lawyers’ careers, from the tentative awkwardness of the 1L year, to involvement in the school’s extracurricular events and social scene, to coping strategies for students not at the top of their class, and the myriad, unexpected turns in our graduates’ professional careers. During his tenure he interacted with nearly 6,000 students and stayed in contact with a staggering number of them after graduation. Invariably, he saw the connection between law school and a student’s subsequent success and happiness later in life (noting, in his wise way, that professional success and happiness are not necessarily the same thing).

In 2008, I started collaborating with Len on a project to construct a law school competency model. Our first iteration was a list of 23 success factors  which we constructed with the help of industrial & organizational (IO) psychologists. Although valid as a matter of social science, the list was too long and complex to gain traction with students. In 2010, the faculty who taught Indiana Law’s 1L Legal Professions class got together and reduced the list of competencies to 15. Once again, we found it was too long and complex to execute in the classroom.

During the summer of 2011, as we were debriefing the challenges of another year in our competency-based 1L Legal Professions course, Dean Fromm said, “I have an idea.” A short time later, he circulated a list of six competencies that were appropriate to 1Ls and foundational to their future growth as professionals. Finally (or At last), we now had a working tool!  Moreover, none of the professors teaching the Legal Professions course, including me, wanted to revise a single word — a veritable miracle in legal academia.

And thus the Fromm Six was born. This is that six:

Self-Awareness. Having a highly developed sense of self. Being self-aware means knowing your values, goals, likes, dislikes, needs, drives, strengths and weaknesses, and their effect on your behavior. Possessing this competence means knowing accurately which emotions you are feeling and how to manage them toward effective performance and a healthy balance in your life. If self-aware, you also will have a sense of perspective about yourself, seeking and learning from feedback and constructive criticism from others.

Active listening. The ability to fully comprehend information presented by others through careful monitoring of words spoken, voice inflections, para-linguistic statements, and non-verbal cues. Although that seems obvious, the number of lawyers and law students who are poor listeners suggests the need for better development of this skill. It requires intense concentration and discipline. Smart technology devices have developed a very quick mode of “listening” to others. Preoccupation with those devices makes it very challenging to give proper weight and attention to face-to-face interactions. Exhibiting weak listening skills with your colleagues/classmates/clients might also mean that they will not get to the point of telling you what they really want to say. Thus, you miss the whole import of what the message was to be.

Questioning. The art and skill of knowing when and how to ask for information. Questions can be of various types, each type having different goals. Inquiries can be broad or narrow, non-leading to leading. They can follow a direct funnel or an inverted funnel approach. A questioner can probe to follow up primary questions and to remedy inadequate responses. Probes can range from encouraging more discussion, to asking for elaboration on a point, to even being silent. Developing this skill also requires controlling one’s own need to talk and control the conversation.

Empathy. Sensing and perceiving what others are feeling, being able to see their perspective, and cultivating a rapport and connection. To do the latter effectively, you must communicate that understanding back to the other person by articulating accurately their feelings. They then will know that you have listened accurately, that you understand, and that you care. Basic trust and respect can then ensue.

Communicating/Presenting. The ability to assertively present compelling arguments respectfully and sell one’s ideas to others. It also means knowing how to speak clearly and with a style that promotes accurate and complete listening. As a professional, communicating means persuading and influencing effectively in a situation without damaging the potential relationship. Being able to express strong feelings and emotions appropriately in a manner that does not derail the communication is also important.

Resilience. The ability to deal with difficult situations calmly and cope effectively with stress; to be capable of bouncing back from or adjusting to challenges and change; to be able to learn from your failures, rejections, feedback and criticism, as well as disappointments beyond your control. Being resilient and stress hardy also implies an optimistic and positive outlook, one that enables you to absorb the impact of the event, recover within a reasonable amount of time, and to incorporate relevant lessons from the event.

I knew Len Fromm, which is to mean I thought the world of him. And for that reason, I did not want to write this post back in April as I was worried that my sadness at Dean Fromm’s death was clouding my judgment and forcing me to go gaga over his six.

But in re-reading it I realize how great the list really is and how much it deserves further dissemination for reasons that have nothing to do with memorializing a truly decent man.

Dean Fromm’s list just works. Law students and young lawyers, go talk to older lawyers you respect and I am confident you will find that they would agree. And the list works for what it takes to succeed as an international lawyer as well, which should be no surprise, since international lawyering is really no different than any other kind of lawyering. If you want to succeed as a lawyer, work on the six. I particularly love the line about silence, as it took me years to realize how valuable silence can be in getting people to reveal things, even things they never intended to reveal.

The scary thing about the Fromm Six is that we lawyers tend not to be very good at many of the things on the list. Lawyers are trained (maybe even over-trained) to be rational, logical and unemotional and to focus on merit. But life, and thus lawyering, is not always so simple. Dean Fromm’s list thus tilts much more towards EQ than towards IQ, and rightfully so.

For more on what it takes to become a China lawyer/international lawyer, check out the following:

I am still gaga over Dean Fromm’s list and I am going to make it a part of my future email responses. What do you think?

Just read a highly relevant post by Ben Shobert (it’s sheer coincidence that I am having lunch with him today) on The Ethical Challenges of Doing Business in China’s Healthcare Economy. Though Ben’s post focuses on health care companies, it applies to virtually all foreign companies doing business in China. Ben’s post stems from an MBA class he taught at the University of Washington.

At one point in the article, Ben states that the “larger question” is “whether the incrementally different standards they [foreign pharma companies in China] must hold themselves to represents what amounts to a tax — both because their host country will look first at foreign companies and hold them to higher standards, but also because the standards in their domestic markets (FCPA, UK Bribery Act, etc.) are applicable regardless of where they might do business.” That is not a question, it is a fact. Foreign companies doing business in China have always been and for the foreseeable future always will be held to a higher standard than Chinese domestic companies.

Back in 2011, we addressed this same question and emphatically came up with the same answer, in When Should You Deal With Your China Ethical Issues? Yesterday:

All but one of these are great questions. The only one I do not like is the next to the last one, “Are foreign companies held to a higher ethical standard in our industry than local companies? The only reason I do not like this question is because I am of the view that one need not even bother asking it because the answer will always be “yes.” In that same post,

Similarly, In The Painted Veil On China Law, we talked of how China law enforcement differs between foreign and domestic companies:

There is one law in China for Chinese companies and that law has little or nothing to do with you as a foreign company. There is another law in China for foreign companies and that law does apply to you.  The laws that do apply to you are likely not all that different from the laws that apply to you in your home country and you are no doubt used to following the laws there.  You should view China similarly.

I cannot resist citing to one of my all time favorite comments, left here by one of the writers (Pipi) of the late great Sinocidal blog, on the differences between foreign companies doing business in China and domestic companies doing business in China:

When in China, do as the law says, not as the Chinese do. The laws are not intended to be enforced fairly – they’re their to be interpreted and enforced as local government sees fit to protect their clan, kin and cash-cows.

Does anyone really think that foreign companies (or at least Western companies) do not have to be just a little bit better than their domestic companies to survive in China? To the extent this “need to do better” can be called a tax (and I most definitely think that is what it is), foreign companies face higher “taxes” in China than domestic companies. And foreign companies that do not engage in bribery and corruption in China are likely at a disadvantage as compared with their Chinese competitors that are more likely to use such methods. And foreign companies that do engage in bribery and corruption are at a disadvantage as compared with their Chinese competitors because they are much more likely to be prosecuted (in China and at home).

Ben’s more interesting question, and one that was addressed by Ben and his MBA class, is “for life science companies like GSK, what really are their options?

Ben and the class saw the following five options (my comments are in italics):

  1. You can choose to maintain western standards of compliance. “The implications of this are that your domestic competitors, and, it should be noted some of your less scrupulous foreign ones as well, will not hold to this approach. So, you cannot simply hold to a high standard, you have to put in place strong sales and marketing tactics that work to stay front of mind in the consumer and healthcare professional.  But, in an emerging economy such as China’s, is this even a realistic strategy? Do consumers have enough discretionary income that they can realistically value the intangibles your therapy is going to offer, or is the decision the consumer will make no different than that the doctor or hospital administrator is going to? If your product is positioned based on an economic rationale that is inconsistent with that of your market, can you compete?”  Right, but you have failed to address a much bigger question: are you willing to risk jail time and public humiliation and reputational damage by engaging in bribery/corruption?
  2. Hold to the status quo. “Here’s what that means:  essentially, you assume the crack down is short-term, and inherently political in nature. ‘This too shall pass’ becomes the phrase you hear executives saying just under their breath as they count rosary beads during weekly management calls. If you believe that the crackdown on GSK was largely a political move by Beijing to accomplish two goals – lower prices and divert the public’s attention away from the government’s own culpability in the dismal state of China’s healthcare system – then you might take the slap on the wrist and move on. Companies that make this bet likely believe that the rules in China are not really in flux; that in twelve months practices in China’s sales channel will look basically like they did twelve months before the GSK scandal. Implicit in this conclusion is that China’s decision is inherently political, and companies who hold to this view would do well to remember that future responses to crises along lines of affordability and access are going to result in similar actions towards foreign companies.”
  3. Fundamentally change your sales strategy.  “This assumes the sort of tactical re-arrangement of how you sell and market like was mentioned earlier, but it also forces companies to bring newer drugs to China earlier than they had originally planned.  For most of the last three decades, products brought into China from all sorts of sectors have tended to be more mature. Much of this has to do with the China market’s inherent IP issues, but also the sense that Chinese consumers were not ready for the more current products. Pharma has been no different, but this approach might have to change for companies that now feel they have no choice but to accelerate their product life cycle plans that originally called for more mature products to migrate to China in an effort to hold off the anticipated IP and price pressures more sophisticated therapies would encounter.”
  4. Exit China. “Don’t laugh. The world’s second largest generic pharmaceutical company, Actavis, just did. My most recent Forbes column touched on this, and made an effort to remind people that there are multiple reasons for Actavis to have left, and that the company’s timing may be designed to take advantage of a moment when they could leave China without questions being asked about why they were not further into the Chinese market versus their competitors. GSK threatened to leave China if the fine from the Chinese authorities was too large, a threat the CEO quickly rescinded. But, neither company would be the first to come to the conclusion that they could not operate successfully in China and that they needed to deploy capital elsewhere.”
  5. Mitigate compliance risk through a very strategic use of distributors. “At its worst, this approach is designed to hide non-compliant behaviors from auditors; at its best, using good distributors is a strategy that forces compliant behaviors into parts of the supply chain that previously were not visible to manufacturers. Typically this involves competent distributors taking over, or managing, the efforts of small dealer networks around China that had previously little to no supervision, simply because of the highly fragmented nature of the dealer networks that service China’s hospitals.”

This is one of those situations where being a China lawyer is much easier than being a manager of a foreign company doing business in China. When my clients ask about how they should handle corruption in China, I tell them that they must never engage in it and that they need clear policies and training sessions to make crystal clear to their own people that corruption simply will not be tolerated. I then tell them that if they do not have a corruption plan AND a corruption policy in place, they have increased their chances of being in a world of pain at some point. I then usually put it to them directly: which of the following do you want to be able to say to the Chinese authorities/US federal prosecutors if your company is ever accused of having engaged in corruption?

  • Oh, sorry, I didn’t realize that corruption might be a problem.
  • We did everything we could to try to prevent this. Here is our policy manual which we require our employees to sign when they join our company and re-sign to acknowledge every year thereafter. And here is a record of the full day mandatory anti-corruption training we give to our employees every six months and the written materials we provide to them each time.  As you can see, the employees implicated in this case each attended x number of these sessions. I really do think we did everything we could do as a company to try to stop this sort of thing and I think you will find that we do take stopping corruption very seriously.
I then tell them about the compliance attorneys at my law firm who can help them sort out their FCPA and China corruption issues and the costs that will entail. They then usually call us back a few days later….
Corruption and bribery?
Don’t worry about the taxes.
Just don’t do it.

Our clients often ask that we put a provision into their manufacturing agreements prohibiting their Chinese manufacturer from making the same product for anyone else. This naturally leads to a long discussion, that often goes somewhat like the following, using a laptop computer bag as the example:

China Lawyer:  What do you mean by a product like yours?  A laptop bag?

Client: That would be great. Is that possible?

China Lawyer:  Not unless you are planning to commit to buying $800 million worth of bags a year. Your Chinese manufacturer probably makes laptop bags for 40-50 other companies and unless you commit to massive yearly volumes, there is no way it is going to just make bags for you. What we need to do is figure out what makes your laptop bags different from everyone else’s laptop bags and see if we can get your manufacturer to agree not to make laptop bags for others that contain your unique features.

Client:  That makes sense. Well, first off, our name is unique and I certainly don’t want our Chinese manufacturer making bags with our name on it for anyone but us.

China Lawyer: Absolutely. We will put that in there, but also, we are going to need to register your brand name as a trademark in China so that nobody in China (not just your manufacturer) can make bags with your name on it. We also need to register your trademark in China to prevent anyone else from registering your name and then being able to stop you from using your own name  at all in China. What else distinguishes your bags from others?

Client: We use orange stitching and I don’t think anyone else does that.

China Lawyer:  Great, so we ask that this manufacturer not make bags with orange stitching. What else?

Client:  We have a side pocket that perfectly holds a passport. What about something like that? Oh, and we have an orange rubber tab on all of our zippers.

China Lawyer:  Perfect. We will put a provision into your OEM Agreement that prohibits your Chinese manufacturer from making laptop bags with any of this attributes.

Client: Are these provisions enforced?

China Lawyer:  Yes, in both China and the United States.

Client:  The United States?

China Lawyers. Yes, the United States. If one of your US competitors were to go to your Chinese factory and start purchasing laptop bags with stitching or zippers or a side pocket like yours, we would immediately send them a letter, attaching your OEM contract with your Chinese manufacturer. That letter would point out the provision saying that your manufacturer is not allowed to make laptop bags with your specific attributes and then it would say that your competitor’s getting such laptop bags from your Chinese manufacturer constitutes tortious interference with your contractual relation. We would then say that if they do not immediately cease buying such bags, we will have no choice but to sue. These letters generally work because the US company either did not know it was infringing on your contract rights or else because it simply does not want to be sued in a US court, even if it may think it will eventually prevail. These provisions tend to be very effective.

As regular readers know, both my co-blogger (Steve Dickinson) and I have written extensively on China Joint Ventures, both here and elsewhere. This is because we find them fascinating, mostly because they are so difficult to make work. Here are some of our previous writings on joint ventures in China that focus on when to enter into a joint venture and how to make one work:

What distinguishes the joint ventures that work from those that don’t?

According to a recent McKinsey article, Avoiding blind spots in your next joint venture, “even joint ventures developed using familiar best practices can fail without cross-process discipline in planning and implementation.” According to McKinsey’s own studies, JVs succeed only around half the time, even though JV best practices are well known:

When we interviewed senior JV practitioners in 20 S&P 100 companies—with combined experience evaluating or managing more than 250 JVs—they estimated that as many as 40 to 60 percent of their completed JVs have underperformed or failed outright. Further analysis confirmed that even companies with many joint ventures struggle, even though best practices are well-known and haven’t changed for decades. In fact, most of our interviewees endorsed several that have long been the gold standard for JV planning and implementation: a clear business rationale with strong internal alignment, careful selection of partners, balanced and equitable structure, forethought regarding exit contingencies, and strong governance and decision processes.

Why do so many joint ventures fail even when the Western company knows what it should be doing to make it succeed? Mostly a failure to follow best practices either initially or later on down the road when the company’s enthusiasm for the joint venture has waned:

Our interviewees suggest that in the rush to completion, even experienced JV managers often marginalize best practices or skip steps. In many cases, the process lacks discipline, both in end-to-end continuity and in the transitions between the five stages of development—designing the business case and internal alignment, developing the business model and structure, negotiating deal terms, designing the operating model and launch, and overseeing ongoing operations. Moreover, parent-executive involvement often declines in the later stages. Finally, many JVs struggle with insufficient planning to respond to eventual changes in risk. Such lapses, even in the early stages of planning, create blind spots that affect subsequent stages and eventually hinder implementation and ongoing operations. We’ll examine each of these issues, along with the approaches some companies are taking to deal with them.

The “rush to completion” is usually due to pressures to “get the deal done quickly.”  How can this be remedied?  “Companies must find ways to balance the pressure for speed with the demands of planning a healthy joint venture—especially allocating their time and resources in line with the potential for value and impact.”

I tend to agree.

If I look back at the China joint venture deals in which my law firm has been involved (and lets throw in the Russian joint ventures and the Vietnam joint ventures that we have drafted as well because why not?), I would say that there is a direct correlation between the time and planning and even difficulty of reaching a joint venture deal and the eventual success of the joint venture.  Put simply, the joint venture deals that were completed in one month are less likely to be standing today than those that took three months.

Why is that?

Joint ventures are incredibly complicated. Just by way of one simple example, who is going to be in charge of hiring, you the American company or the Chinese company? The quick answer is usually the Chinese company, because the Chinese company certainly knows better who to hire in Dalian or in Wuhan than you do. But then what’s to stop the Chinese company from hiring 100 of its relatives or from charging mediocre people for jobs at your joint venture? And if it does that, where do you think all of your profits are going to go? So now that you realize the importance of your having some say in hiring, what say are you going to require? Certainly you do not want to do the hiring, but do you want veto rights? Should you be limited in the number of potential employees that you have the right to decline? What about firing employees? Certainly your position will be different on managers than janitors. Speaking of janitors, are you going to want to limit the number of janitors the JV can hire? The issues on control can be endless, and this is just one of thousands of issues that joint venture partners might resolve before they ink  a deal.

Yet the more issues on which the putative joint venture partners agree before the joint venture is formed, the less room there is for arguments and disputes and wrenches being thrown in the works after the joint venture is formed.

So next time you are ready to kill someone (i.e., your China lawyer) during the third month of your trying to work out a joint venture deal, just remember that every day of delay is probably increasing your chances of the joint venture generating you money, as opposed to falling apart.

What do you think?

Got an email the other day (probably the tenth such email I have received) from someone about to sign a contract with a Chinese employee dispatch company.

The email asked that one of our China lawyers review the contract within the next two days to make sure there were no “hidden issues”.  I promptly wrote back to decline the assignment, explaining that there were far too many questions/hidden issues to accomplish much of anything within two days.

Foreign companies sometimes use Chinese employee dispatch companies to hire employees in China on behalf of the foreign company. The advantages of this can be many, the chief one being that the foreign company need not worry (at least so much) about China’s various and complicated employment laws.  Some (though fewer and fewer) employee dispatch companies will even hire someone on behalf of a foreign company that does not have a China entity (such as a WFOE).  This is a legal (as opposed to illegal) way for a foreign company to have someone in China essentially operating as their employee.

But the laws/regulations on employee dispatch in China are constantly changing and so using one of these companies can be a legal minefield.  And the thing to remember is that the China employee dispatch company does not care much about you (the foreign company) beyond your ability to keep paying them.

Anyway, I very quickly (as you will see below) reviewed the documents provided to me and just as quickly fired off a return email warning of countless “hidden issues” that were immediately apparent to me at first glance.  My email (modified slightly) is below.  I am posting it here because the issues (hidden or otherwise) it discusses are relevant to virtually all relationships with these third party dispatch companies, and because it highlights the dangers of just signing the dispatch contract put in front of you.

Here’s my email:

Based only on the documents you have provided me and on the very limited facts I was able to glean from a two minute review of the emails that were included with yours, I see all sorts of potential hidden issues here and there is absolutely no way we can do anything on this in two days.  We have dealt with ________ [the dispatch company] many times and so I am not terribly surprised by what you have here, but based on my five minute review of just the English language documents (as opposed to the email) here are my initial thoughts:

1.  It is not clear to me that you can legally do what you are doing.  I do not have enough information to know one way or the other.  Company D [this will be what I call the Chinese dispatch company] does not really care about the legality of what you are ding because it will get paid anyway, even if someone from your company finds him or herself in jail the next time they go to China.  The legality of this whole arrangement is the first issue that should be determined.

2.  I saw only a contract between you and Company D, nothing between Company D and the putative employee of Company D. What this means is that the employee of Company D can do whatever he or she wants and probably can never be fired.  Reveal your company secrets. Check.  Steal from you.  Check.  All without your having any recourse.

3.  Oh, and if the putative employee steals from you or reveals your company secrets, it appears that nobody can fire this employee under Chinese law, but on top of that, you couldn’t do it anyway because there is no mechanism in your contract with Company D that would require Company D to fire the employee.  But hey, you are still required to pay Company D for this employee for two years and then if Company D deliberately or accidentally signs the employee (or even with your begging Company D not to do so) for another two years, you have to pay for that too.  And if you somehow manage to fire this employee for stealing from you and this employee sues Company D for that (but remember, it is very unlikely that Company D would ever fire this employee so this is not really a likely scenario, but I am running with this just to highlight how much is missing here) Company D will no doubt just pay this employee whatever it wants because you are the one who will be on the hook for that payment anyway.  Why should Company D pay lawyers to defend claims that you are required to cover in any event?

4.  Like I said, the above is based on the English version only.  The English is actually completely irrelevant since the Chinese controls.  My guess is that the Chinese version is considerably worse (to the extent that is even possible) for you.

What we typically tell our clients (and let me stress that you are not our client and that the above is based on only a 7 minute total review — five for the contract and two for the emails — and therefore you should not consider it to be legal advice and you should recognize that it is based on what might be inaccurate facts and incomplete documents and that we never even looked at the Chinese language document(s) and therefore you should NOT rely on it in making your decision and you should seek out your own independent legal counsel to assist), in these situations is that we need a sufficient and realistic amount of time to review the documents, to revise the documents, and to work with both the client and with the Chinese employee dispatch company to craft some documents that will protect the American company from its employee and from the Chinese employee dispatch company.  This sort of thing takes more like two weeks, not two days.

I truly wish you the best of luck on this and I am sorry that we could not help you.

What do you think?

A few weeks ago, CLB’s own Steve Dickinson gave a webinar presentation on the legal aspects of China gaming and software development.  Steve’s talk was half of a China IPR SME Helpdesk presentation, entitled, Cultural and Creative Industries: Computer Gaming and Software Development in China.

The Helpdesk described the webinar as follows:

Very few economic sectors have revealed as much economic potential in China as the cultural and creative industries (CCIs). Currently the gaming industry in China is worth 6 billion dollars and it’s still growing what creates great business opportunities. With the increasing ownership of smartphones and developing industry chain, mobile games have become the fastest growing and most competitive segment of the entire Chinese games market. Yet, the complicated landscape of app stores and persistent piracy culture exacerbates challenges for overseas developers. In this session you will learn about how EU SMEs can make the most of China’s huge mobile gaming market, and the steps you must take to protect your Intellectual Property. China lawyer Steve Dickinson and the EU SME Centre expert Mikko Puhakka presented the following topics:

  • China’s mobile gaming market — overview and latest development
  • Market access for foreign providers
  • Adjusting to the Chinese market: popular formats and localization
  • Monetisation and distribution platforms in China
  • Copyright registration for software, games and using the unique Chinese software copyright registration regime
  • Importance of registering trade marks.
  • Potential of registering the patent to protect software’s IP.
  • Pursuing IP infringement

And now it is available for your listening pleasure; if you just click here you can download the presentation pdf and the webinar recording.

Let us know what you think….