Not exactly. But what we are saying is that the litigation cultures of China and the West greatly differ.
What we are saying is that litigation cultures of China and the West differ.

This is the first in what will be a long series on what it takes to litigate or arbitrate successfully against Chinese companies. Disputes between foreign and Chinese companies are on the rise both because both sides on China-foreign transactions are becoming less tolerant of infractions and because China’s economy is on the decline. There is an old saying about how lawyers do well when an economy is either rising or falling, just not when it is stagnating.  Put simply, litigation occurs when a company has decided that the highest and best use of a particular chunk of its time and money is to sue someone. When profits are difficult to find outside litigating, litigating becomes more likely. Companies in financial pain tend to lash out by suing or by threatening to sue and we are seeing a wealth of that these days from Chinese companies.

Many years ago, I wrote an article for the Wall Street Journal, Chinese Companies Court Disaster, on how Chinese companies are generally ill prepared for the U.S. legal system. Though this is true of most foreign companies that come to the United States or do business with U.S. companies, the huge differences between our two systems, and even the way Americans feel about China, have made things even tougher for Chinese companies in U.S. Courts. The same holds equally true for Chinese companies in Canadian and Australian and most European countries’ courts as well. Anecdotal evidence among the China lawyers and the litigators at my firm and from others suggests lawsuits against Chinese companies are rapidly increasing yet Chinese companies do not seem any better equipped to handle these lawsuits than when I wrote the Wall Street Journal article more than five years ago. To put it bluntly, Chinese companies making big mistakes whenever they litigate or arbitrate outside China, either as plaintiffs or defendants:

But Chinese companies are needlessly putting themselves at an even deeper disadvantage by making basic mistakes. The first is a failure to do the planning necessary to avoid lawsuits in the first place. In the U.S., companies generally view lawyers as counselors whose job includes helping their clients prevent legal problems, while also making sure the company is best positioned if a lawsuit does pop up (for instance, by helping to draft precisely worded contracts). In China, executives tend to view lawyers as technicians whose job is simply to navigate the court system when a lawsuit arises, rather than as strategic legal planners. This has been a factor in the growing area of U.S. intellectual property litigation against Chinese companies, where often a competent American lawyer would have warned the Chinese manufacturer early on of potential IP problems with a product had the company sought counsel.

This series is going to focus on how foreign companies doing business in China or even with China can best avoid disputes with their Chinese counter-parties and, equally importantly, it is going to focus on how to handle a dispute with a Chinese company should one arise. Please stay tuned.

 

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Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.

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    Yes, treating lawyers as “technicians” has its downside (potential IP problems for unsuspecting companies is a great example), but it also has some advantages. First, it notably reduces legal costs, as attorneys are retained less often and paid less money. Second, Chinese business execs have no expectation whatsoever that lawyers be “strategic advisers”, as those who practice law are usually unsuited for making entrepreneurial decisions. That’s also why lawyers in China (and many other places) can’t get away with charging over-the-top legal fees.