Litigation and Arbitration

China lawyers
Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments or phone calls as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a quick general answer and, when it is easy to do so, a link or two to a blog post that provides some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.

What with all the US-China tensions and trade tariffs,

our China lawyers are getting an increasing number of questions from U.S. companies regarding Sinosure. To grossly summarize, they go something like this: “We have received an email from Sinosure’s lawyers saying we owe XYZ China factory $371,456. We do owe them some money but not this much because this does not include the $123,675 that should have been subtracted for the poor quality product we received but could not use. Should I just send them the money we owe them?”

Short Answer:  No. If you send them the money you say you owe the odds are overwhelmingly that you will be pursued for the rest. Also, if you are going to pay anyone anything in China you need a full-fledged Chinese languageChina-specific settlement agreement making clear your payment will resolve all outstanding issues both with Sinosure and with the XYZ China factory. Most importantly, you will want that settlement agreement to be signed and chopped by both Sinosure and by XYZ China factory.

For more on how to deal with Sinosure, check out China Sinosure: What You NEED to Know.

China Employment Lawyers

Our China employment lawyers are asked by China employers about pursuing claims against an employee who fails to give sufficient notice of their resignation. Generally speaking, you cannot demand an employee pay damages for an early resignation unless you can show actual damages as a result. Just a quick summary of the relevant law on employee resignations: in accordance with China’s Employment Contract Law, a China employee during his or her employment contract term can generally leave by giving 30 days written notice while an employee on probation can leave with 3 days notice. We usually (but not always) recommend our employer clients not  make it more difficult for their employees to leave than the law mandates. Though it’s not an easy task, it is possible to pursue an employee for failing to abide by legal standard on resignation or a contractual standard, provided the contractual arrangement does not violate applicable law.

Let’s consider a hypothetical. Employer and Employee enter into an employment contract for a fixed term for Employee to work as a front-desk cashier at a hotel. Employee leaves before her employment term is up without providing a reason or a notice of resignation. Employee’s manager tries to get in touch with her, but to no avail. Employer leaves the employee a text message warning her that if she does not return to work or otherwise get in contact with her Employer right away, Employer will take legal action. When Employee is no show, Employer hires a temp to perform her job duties. Employer then brings a labor arbitration claim for damages as a result of Employee’s unauthorized departure. Will Employer prevail?

In the real case on which the above hypothetical is based, the arbitrator noted that pursuant to China’s Employment Contract Law, an employee who violates the law on employment termination notices and causes damages to the employer by having done so shall be liable to the employer for damages. The arbitrator went on to hold that this particular had failed to provide adequate resignation notice as required by law (that is, 30 days’ written notice), had left her work position without authorization, and that her behavior had caused economic losses to her employer. It therefore ordered this employee to pay her employer damages. The employer did not get the amount it was seeking because the arbitrator held that the daily salary the employer claimed it paid to the temp was much higher than workers in similar and even higher positions and it significantly held that damages should be roughly $20 a day, not the $50 a day the employer had sought. To make a long story short, the employer had sought a little over $1300 in damages and it ended up being awarded a little over $200 instead.

This case affirms that it is possible for an employer to pursue an employee for leaving without providing proper notice which causes damages to the employer. However, as is true of so many other claims against an employee, the amount of possible damages are likely to be so low that it will rarely make sense on economic grounds to pursue an employee for leaving early. Of the times a China employer has asked one of our China employment lawyers about pursuing an employee for leaving early, I can recall only one time where we thought it might make sense and that one time involved a very high level employee who the employer believed had left with trade secrets and a plan to compete against his former employer. Bringing the action in that instance would be done as much to send a message to the ex-employee and to other employees as for economic reasons.

Bottom Line: As is true of so much employment litigation and of litigation in general, the decision to pursue a claim needs to be based on more than just the likelihood of success on the merits. If you are going to bring any sort of arbitration claim or lawsuit in China you should first weigh the likelihood of success on the merits and the amount you will be awarded if you prevail and your likelihood of collecting on the one hand against the economic and emotional and opportunity costs on the other hand. In most cases, your best course of action will be to walk away.

 

China lawyers
Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments or phone calls as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a quick general answer and, when it is easy to do so, a link or two to a blog post that provides some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.

I got a super-short email this morning from a U.S. lawyer I do not know, asking me “What language should I use for a contract with a Chinese tech company.” I am going to give my answer below and direct him to this post.

That depends. It depends in large part on where you are going to have disputes resolved. If you are going to have disputes resolved in a US court or before a Canadian or British arbitrator you are probably going to want to have it be in English. But then you probably should have US or Canadian or British law apply to it. If your contract is calling for disputes to be resolved before a Chinese court, it should probably be in Chinese. I first ask where the dispute should be resolved so as to most benefit my client and after I make that exceedingly difficult decision the right language usually becomes crystal clear.

For various reasons (chiefly enforcement) we draft most of our contracts provisions stating that disputes will be resolved in a Chinese court. At that point it becomes critical for the contract to actually be enforceable in China. That usually means the following there things are critical:

1. The contract be governed by Chinese law. Chinese law will permit your contract to be governed by foreign law. However, because Chinese courts will require you to prove every relevant element of foreign law choosing foreign law for a dispute in a Chinese court almost never makes sense. Having to prove foreign law will be expensive and will likely lead to delay. Most importantly, the other side will dispute the application of foreign law, rendering your case and even any judgment you receive uncertain.

2. The governing language of the contract should be Chinese. Chinese law will permit you to provide for English as the governing language of your contract, however Chinese courts will only work with Chinese language documents. This means your contract will need to be translated into Chinese by a court appointed translator. The translator is often not particularly skilled and the resulting translation is often simply wrong. Even when the translation is correct, the other side will usually dispute the translation, leading to delays and ultimate uncertainty in the decision. Having someone else translate your contract after you sue means you will not know exactly what it is on which you are suing until after you get the translation back. Sometimes Chinese courts simply refuse to hear a case that involves contracts in a language other than Chinese.

3. The contract should be enforceable in a Chinese court with jurisdiction over the Chinese company. This normally means jurisdiction in a court in the district where the Chinese company has its principal place of business.

 

 

China arbitration lawyersChinese companies (especially SOEs) increasingly require their contracts with foreign companies provide for disputes to be resolved by arbitration in China. In these situations, we are seeing mostly CIETACand BAC arbitration clauses.

Many of our American and European clients are uncomfortable with arbitrating against a Chinese company in China as they are convinced they cannot “get a fair trial” there. Our China lawyers explain how in our experience, the nationality of the parties to a Chinese arbitration is far less important to the ruling than the overall way in which Chinese arbiters (both judges and arbitrators) view cases. We then explain how Chinese courts focus much more on the equities of a case (as opposed to the law) than American courts and that is even more true of Chinese arbitrators.

With equity so central to China disputes, potential litigants should stop reviewing their cases strictly on the law and start looking at them from an equitable perspective as well. In determining the strength or weakness of your case, you should ask yourself who in all fairness should win this case and whose winning it would be best for the people of China?

Many years ago, an American company asked my law firm’s China international arbitration lawyers to compete for a China arbitration matter. We told this company that our strategy would be to try to settle the case as quickly as possible because we saw little likelihood of winning because the equities were so against it. The American company chose another law firm because that firm was “confident about winning based on the law.” The American company ended losing at arbitration.

My law firm’s international arbitrators not so long ago secured a seven figure arbitration award in a CIETAC arbitration conducted in Chinese on behalf of an American company against a Chinese company. Without a doubt, one of the keys to this victory was our lawyers (not me) accounting for the equities in making the decision to bring the case and then emphasizing the equities at the arbitration itself.

A couple years ago I testified before a Congressional Committee on how China treats foreign companies and on how American companies sometimes confuse “the Chinese way of doing things” with bias and I used China arbitration and litigation matters as  examples of this. I am not going to say that foreign companies are always treated fairly in China because they are not. But I am going to say that it is important to distinguish between China actions that stem from bias and those that stem from American misunderstandings of how China operates.

Litigation and arbitration in China are very different from litigation and arbitration in the United States and in Europe, of that there is no doubt. But if you understand and account for those differences, you will find bias to be far less of a problem than you would expect.

What have you seen out there?

Hong Kong ArbitrationEvery month or so, a lawyer will write me out of the blue with a “quick question” about a draft contract. Without a doubt, the most common “quick question” I (and the other China lawyers at my firm) get is asking me to “confirm” that Hong Kong arbitration would make the most sense for such and such type of contract. I usually respond to this question by explaining that for me to be able to confirm or disagree with their having chosen Hong Kong arbitration I would need to review the entire contract and know a ton more information. About half the time, the lawyer responds by asking like what? I then respond by saying that when the lawyers at my firm are trying to figure out the best venue (location) and method (arbitration versus litigation) to put into an international contract, we typically consider the following:

  1. Who the parties are.
  2. Where the parties are located.
  3. Applicable law.
  4. Contract language.
  5. The goals of the client. Money? IP protection? Something else?
  6. The likelihood that the client would breach the contract as compared to the likelihood the other side would breach the contract.
  7. The sort of disputes likely to arise.
  8. The language(s) spoken by the client and the other side
  9. The client’s wealth as compared to the wealth of the other side.
  10. The need to engage in discovery if there is a dispute.
  11. The need to bring in third parties to any dispute.
  12. The complexity/simplicity of likely disputes
  13. Appeal concerns.
  14. Confidentiality concerns.
  15. Concerns regarding speed of dispute resolution.
  16. Enforcement of judgment/award concerns.

Contracts cannot be reviewed in a vacuum.

Let me explain.

A very long time ago, a large manufacturing company client contacted me to help with an international product recall. This companies product had a faulty and potentially dangerous part that had been provided to it by one of its smaller suppliers. My first thought was that my client should seek reimbursement of the recall costs from this small supplier and its insurance company. Towards that end I asked for a copy of the supply contract as between my client and its supplier.

Unfortunately, the contract protected the small company in every respect. This surprised me because usually big companies impose its terms on their small suppliers. I explained to my contact at the company (an excellent international compliance person, but not a lawyer) why his company had allowed such an unfavorable contract to be used and now it was his turn to be surprised. He told me that his company had believed this was a really well drafted contract and they had recently stared using it with all of their new suppliers. My response was that it was one of the best drafted supply contracts I had ever seen and that was part of its problem; it had been incredibly well drafted but entirely in favor of the small supplier, not in favor of my client who was the recipient of the parts. I then asked who had drafted this contract (I was especially curious because I thought my firm had a lock on this company’s international contracts). His response was that no lawyer had drafted it; a non-lawyer high up in supply chain management had seen this contract when their largest supplier had required they sign it and he just figured it would be a really good contract because it came from XYZ company. My response was, yes, it is a great contract, but a great contract for a parts supplier, NOT for a parts recipient and when XYZ company required you sign this contract it was acting as a supplier. The client ended up paying every dollar of the recall.

What would happen if a lawyer were handed this contract for a one or two hour review from another lawyer without being provided with the context behind this contract? The lawyer would review it and say this is a great contract and I don’t see anything that needs to be changed.

Context can be equally crucial for dispute resolution clauses.

Over the years, our China attorneys have dealt with the following situations, the facts of which have been modified so as to negate any possibility of anyone recognizing the specific matter:

1. Tokyo Jurisdiction. An American company comes to us after learning that its Chinese manufacturer has started manufacturing and selling  the American company’s newest version of its core product. I read a provision in the contract to expressly state that any future iterations of the core product would belong to the Chinese company and I mention this to the potential client. The potential client then tells me that when it complained to its Chinese manufacturer about IP theft, the Chinese manufacturer cited to the same provision and said the product now belonged to them.

To make matters worse, the contract called for all disputes to be resolved in “Tokyo Superior Court.” I asked the potential client how it was decided Tokyo Superior Court would be the venue for any disputes and the potential client explained it as follows:

The Chinese company asked for disputes to be resolved by arbitration in Beijing and my lawyer said that we wouldn’t stand a chance there and so we refused. The Chinese company then proposed Singapore or Hong Kong arbitration and my lawyer countered with Tokyo Superior Court because it was the opposite [both with respect to the type of forum — arbitration versus court — and the location] of what the other side wanted.

Ugh. I then explained how no country other than China will allow for a lawsuit in its courts that has zero to do with its country and because this case would involve a US-based company going up against a China-based company on an issue with zero relevance to Japan, there is no way a Japanese court will allow itself to be a free (or nearly free) public forum for this dispute. I did not even bother to mention that there is no such thing as the Tokyo Superior Court or that even if the US company were to sue in Tokyo and get its case heard in Tokyo (which will never ever happen) and then win in Tokyo, no court in China would ever enforce the judgment because the Tokyo court never had any jurisdiction over the matter. The US company might be able to convince a Chinese court to take the case, but I doubt it, simply because China very much tends to enforce contracts no matter how silly they may be and I most Chinese courts would likely just toss the case for not having been filed in Tokyo as per the contract.

2. Toronto Jurisdiction. This is one of my favorites. I get an angry email from someone that essentially says as follows:

I read your blog regularly and carefully and you were wrong about Canada and that makes me wonder what else you have been wrong about. I read one of your posts where you talked about how you like to propose Canada for disputes because Chinese companies often will agree to that. Well the Chinese company we work with did agree to that but when it came time for us to actually sue them there, all of the Canadian lawyers told us that we couldn’t.

Future communications revealed that this company had — based on my having extolled the virtues of proposing Canada for arbitrations — believed it could list the Toronto courts as the jurisdiction for disputes between its US-based company and its Chinese counterpart. Just as would have been true in the Tokyo instance above, there is no way a Toronto court will hear a dispute between two foreign companies on a matter that has no relevance to Canada. Fortunately, the Canadian lawyers to whom this company went realized this and chose not to waste the US company’s time and money pursuing litigation in Toronto. I had to point out that we constantly emphasize that dispute resolution provisions must be fact and situation specific and that there is a big difference between what can be done in arbitration and what can be done in a foreign country’s courts. I didn’t — but I should have — pointed out the disclaimer here on our website:

The China Law Blog is for educational purposes and to give a general information and a general understanding of Chinese law. It is not intended to provide specific legal advice…. You should not use the China Law Blog as a substitute for competent legal advice from a licensed attorney.

3. Split Jurisdiction.  We get this one fairly often. The contract provides that the Chinese company must sue the United States company in a U.S. court and the U.S. company must sue the Chinese company in a Chinese court. The thinking behind this is logical but its execution is so flawed that we avoid these provisions like the plague.

These provisions initially seem to make sense because this sort of split jurisdiction appears to favor the U.S. company. If the Chinese company seeks monetary damages from the American company, it must go through the trouble of suing the American company in a U.S. court where the U.S. company will presumably get a fair trial. And on the flip side, the American company can sue the Chinese company in a Chinese court, which is (90 percent of the time, anyway) exactly where the U.S. company should want to be. For why this is the case, check out China Enforces United States Judgment: This Changes Pretty Much Nothing and China Contracts: Make Them Enforceable Or Don’t Bother.

But Chinese courts typically hold that this sort of split jurisdiction clause means there is in fact no jurisdiction in China. So if you really want jurisdiction to be in China, your agreement should be 1) be governed by Chinese law, 2) be written in Chinese and 3) provide for exclusive jurisdiction in China. This is not black letter law. This is just what actually happens on the ground in China’s courts and this is why our firm’s China attorneys provide for all three of these in all contracts where it is critical our client be able to sue in China.

But once again there is no clear answer as to what might be best for any given company’s specific situation. To properly evaluate whether you go with Chinese law in a Chinese Court (which is what we usually end up choosing to do), you need to consider your most important concerns. Is it more important you have an effective remedy against the Chinese company with which you are contracting or is it more important you make it as difficult as possible for the Chinese side to sue you? If your primary goal is to be able to enforce the contract against a Chinese company, you usually will want to provide for exclusive jurisdiction in China with Chinese law applying and the contract being in Chinese. But if your primary goal is to prevent the Chinese side from suing you, you should consider providing for exclusive jurisdiction in the United States. But if you do this, you must realize that because China does not enforce U.S. judgments, you may never be able to enforce it against your Chinese counter-party. It is these preferences that should help you decide the best jurisdiction provision for your contract. In any event, the split jurisdiction approach generally does not work.

4. Geneva Chamber of Commerce Arbitration. A very good client of ours came to one of our international litigators with a contract calling for arbitration before the “Arbitration Institute of the Geneva Chamber of Commerce.” Problem was the Geneva Chamber of Commerce did not have an Arbitration Institute nor did it handle international arbitration. Our client had taken a contract my law firm had written for them and made a few changes and simply re-used it on another deal. The contract my firm had written had called for disputes to be resolved before the Arbitration Institute of the Stockholm Chamber of Commerce, which is a very common forum for resolving disputes between Russian and American companies. So when my client went off and did an agreement with a Spanish company and the Spanish company refused to have the contract disputes resolved in Stockholm, my client just switched “Geneva” for “Stockholm” and called it a day. But then when it came time for my client to pursue arbitration we had to conduct massive research to determine how even to commence arbitration before an arbitral body that did not exist. We ended up deciding to file with the Swiss Arbitration Association in Geneva, and the opposing side vigorously contested our choice of forum. We actually were able to keep the case there, but only after incurring a large amount in fees fighting to do so.

5. South Carolina Arbitration in Chinese Under British Law. Yes you read it right and if you are not stunned by this, you should read it again. This is my all time favorite. U.S. company comes to us with an arbitration clause mandating arbitration in South Carolina in Chinese under British law. When I talked about how much it would cost to get three Mandarin-speaking arbitrators to South Carolina (assuming the other side doesn’t argue for some other Chinese language) and and the added costs of researching and arguing British law, the U.S. company — wisely — chose not to pursue the case. When I asked the company how it had chosen this particular dispute resolution provision they explained that they had taken it from one of their previous agreements. I didn’t say a word, but what I will say now is that a provision like this is a great way to discourage arbitration and sometimes that can make sense, but such a provision is a disaster if you are the one that ends up needing to sue. Again, context is everything.

Every once in a while when I say that I cannot opine about their having chosen Hong Kong arbitration for their specific contract, the attorney will write me back asking for “my general opinion regarding Hong Kong arbitration”. My response is that there are plenty of excellent arbitrators in Hong Kong but arbitration there is generally very expensive and, most importantly, it is seldom the most effective forum for enforcing a contract with a Chinese party.

Frankly, the biggest issue I have with Hong Kong arbitration is that far too often attorneys choose it not because it is the best forum for their client’s disputes, but simply because they are comfortable with it because it has a common law system very similar to the United States, Great Britain, Canada and Australia and the contracts and the arbitration can easily and logically be in English. Like everything else, whether these reasons make sense will depend on the entire context.

International IP litigatorOur China IP lawyers get a steady stream of emails asking what can be done to stop Chinese companies from selling “knock-offs” of their products. This is really two questions. What can be done to prevent Chinese companies from knocking off your products and what can be done to stop a Chinese company that has already knocked off your product. This post will address both questions.

I.  The Basics For Preventing Counterfeiting. 

Back in the retail stone ages (five or so years ago), when companies would come to my law firm for China trademarks to protect their brand names from Chinese copycats, we would tell them that applying for such a trademark would take about a week, but actually getting the trademark officially registered in China would take more than a year. We would then tell them that until their trademark is registered in China, we would be almost powerless to stop companies in China from using their brand name. Few voiced any concerns with this.

Fast forward a few years and now when one of our China trademark lawyers tells a client that securing a China trademark will take a year, those who sell online (which these days is almost everybody) rightfully get all nervous and want to know what to do in the meantime to protect against copycats. See China and the First to Market Fallacy for how incredibly quickly China companies can and do copy products and get them to market.

Our typical response is to talk about “building IP walls outside China.” If you are selling your product in the United States and in Spain you should focus on protecting those two countries, by among other things, securing trademarks in those two countries as quickly as possible. Though a U.S. or a Spain trademark technically will not give you any trademark protection in China, it can still help in getting offending ads removed from Chinese websites like Alibaba. If “your” product shows up on Alibaba and you have no registered IP, your chances of getting Alibaba or some other Chinese website to take it down are slim. But if you have a registered Chinese trademark that is being infringed by something online your odds of getting that offending ad taken down are good. If you have a Spain trademark and an Alibaba ad clearly targeted at Spanish consumers infringes on your Spain trademark, your odds of getting that ad taken down are not bad, which is a whole lot better odds than if you did not have the Spain trademark at all. The same holds true for the United States.

Of equal importance though is that if you have a Spain trademark on your product you can use that trademark to try to keep the offending product from China from reaching Spain. You can do this by working with Spain’s Customs and Border Protection Bureau, which is authorized to block, detain and seize incoming products that violate Spain and EU intellectual property rights. The United States and virtually all other EU countries have similar procedures. In many countries it makes sense to register your trademark from that country with its Customs office.

Registering your trademarks with China’s Trademark Office is the essential first step for just about any company that is having its product made in China or that faces a counterfeiting threat from China.. See File Your Trademark In China. Now., China: Do Just One Thing. Trademarks, and China’s Changing Trademark Environment. Why You Need To Register Your Trademark Now. Because China is a first-to-file country, until you register a trademark you have no rights in that trademark. But a trademark registration alone will not limit the spread of counterfeit goods. A trademark registration merely gives you the legal capacity to enforce your rights to that mark, and should properly be seen as one of the pieces in an overall strategy.

For any company concerned about counterfeit goods coming from China, the next step should be registering your trademark with Chinese Customs. This is not a legal requirement but a practical one: though China Customs officials have discretion to check every outgoing shipment for trademark infringement against the Trademark Office database, in reality they only check against the Customs database. No separate registration with China Customs means no enforcement by China Customs. See How To Register Your China Trademark With China Customs and China Trademarks: Customs Helps Those Who Help Themselves.

If you register your mark with Customs, they will contact you any time they discover a shipment of possibly infringing goods. At that point you have three working days to request seizure of the goods. Assuming you request seizure (and post a bond), Customs will inspect the goods. If Customs subsequently concludes the goods are infringing, they will invariably either donate the goods to charity (if the infringing mark can be removed) or destroy them entirely. The cost of destruction, and of storing the goods during the inspection process, will be deducted from your bond. Registration with China Customs generally takes three to five months and can only be done after China’s Trademark Office has issued a trademark certificate.

We cannot stress enough the importance of China trademarks and China NNN Agreements for any counterfeit prevention strategy. China patents and China copyrights should be an important part of your counterfeit prevention strategy as well, but in our experience, getting offending goods taken off websites is fastest, easiest and most likely if you have a China trademark. See China and Worldwide: Trademarks Good, Patents Bad. Or as one of our China IP lawyers is always saying: “You can probably survive a Chinese company selling a duplicate of your product and selling it for half of what you charge, but if that duplicate product also can legally use your company and/or brand name on it, you may never recover. A China-centric NNN Agreement works to ensure that your own supplier will not sell your products out its back door. Note that a Western-style NDA Agreement for China will probably decrease your IP protection, not increase it.

II.  The Basics for Stopping China Counterfeiting

I apologize in advance for this portion being U.S. focused. This is somewhat necessary for this portion of this post because so much of it deals with litigation and my law firm has litigators in only the United States and in Spain. And since I am not a licensed Spain lawyer, I will confine my discussion regarding IP litigation against Chinese companies to just the United States. Nonetheless, almost all of what I say below is applicable to varying degrees to most countries outside China, not just the United States.
You just discovered a Chinese company is knocking off your product. What do you do? If you are like most companies, you go to your regular lawyer and ask her what to do and if she is like most U.S. lawyers she probably does not know. So then what? At that point, you or your regular legal counsel should reach out to a lawyer experienced in fighting Chinese counterfeiters and experienced in cross-border litigation. There are a lot of options for going after Chinese counterfeiters and the key is usually choosing the right option or the right combination of options.
The right option is usually going to depend largely on your own individual situation. When one of our international IP litigators gets an email asking us to take on a China counterfeiting matter, we usually fire back with a slew of questions to try to learn more. Below are some of the more common questions we ask.
  • What IP registrations do you have and where?
  • Do you have any trademarks registered in China? Do you have any trademarks registered in any other country? Are these knock off products using your brand name or your company name or your logo? Do you have trademarks on any of these in China? Elsewhere?
  • Please describe your registered trademarks. Is the counterfeiter using any of these?
  • Do you believe you have any common law trademarks anywhere? Is the counterfeiter using any of these?
  • Do you have any copyrights? Are any of these copyrights registered in China? Are any of these copyrights registered anywhere else?
  • Please describe your registered copyrights. Is the counterfeiter using any of these?
  • Do you believe you hold any copyrights that are not registered anywhere? Is the counterfeiter using any of these?
  • Do you have any patents registered in China? Do you have any patents registered in any other country?
  • Please describe your patents. Is the counterfeiter infringing on any of these? If so, how?
  • Have you registered your IP with any customs offices in any country? If yes, please describe.
  • Do you know anything about the Chinese company you believe to be knocking off your products? Please describe any prior dealings you have had with this company. Do you have any contracts with this company?
Answers to the above questions (and many more) help our international IP litigators figure out how best to proceed.
The below are some of the options you might have for pursuing your China-based counterfeiters.
1. Pursuing administrative or litigation relief in China. This might be done administratively, via civil litigation in a Chinese court, or even criminally. If you have a contract with the Chinese company that is counterfeiting your products and that contract calls for arbitration of all disputes, arbitration will be another option for you.
2. Figure out who is importing the counterfeit products. Oftentimes the US importer is closely connected to the company in China that is knocking off your products — like a son or a daughter or a spouse so pressuring or suing the importer often can be effective with the Chinese company as well.
3. Suing Chinese companies in US court usually takes a long time because Hague service of process on Chinese companies is taking a long time, and with the trade war heating up, it’s likely to start taking even longer. It is already at the point where if you do not have a Chinese attorney constantly calling all the right people in China all the time to check on the progress of your Hague service, it probably will never happen. There are though sometimes creative ways to get around Hague Service of Process.
On top of this, getting a Chinese court to enforce a US judgment is going to be difficult, if not impossible and the US-China trade war likely will hurt you on this front as well. See China Enforces United States Judgment: This Changes Pretty Much Nothing. This means your suing for damages in a US court will oftentimes not be the right tactic for you to take against a Chinese counterfeiter. But a Chinese counterfeiter in a US court might allow you to seize funds or other assets belonging to the counterfeiter or get an injunction blocking its sales.
4. Official Chinese company records can be goldmines of information that you may be able to use to impress upon the Chinese company the need for it to stop copying your products. This is especially true if those records help you show US connections
of the company or its owners or officers or directors.
5. Section 337 cases filed with the International Trade Commission in Washington D.C. can be a great way to stop counterfeit products from entering the United States. See Stopping Infringing Products From China: Section 337 Cases. These cases can be pursued without having to serve the Chinese defendant under the Hague Convention service of process rules.
6. Serving takedown notices on the online sites that are selling the counterfeits of your products can oftentimes be fast and easy and effective, mostly depending on the existence and quality of your IP registrations. See e.g.,
How To Remove Counterfeits From Alibaba Register Your China IP.
Bottom Line: It’s never too early to take action to prevent Chinese companies from counterfeiting your products. And if you are hit with a counterfeiter, it is critical that you explore and weigh your options carefully.
For more on counterfeit products from China, check out China Counterfeiting: 8 Common Myths

China company chop

It is always a good idea to have your Chinese counter-party “chop” or “seal” your China contracts with their official China company chop. It has been more than five years since we blogged about what constitutes an official China company chop and it seems like our China lawyers are getting an uptick in requests for us to explain how to discern what is and is not an official China company chop. This post is a response to those emails and a necessary update to our previous posts on China company chops.

Every contract with a Chinese company must be executed by a person at the Chinese company with authority and it must be chopped with the official company chop (sometimes also referred to as a company seal). However, there are many types of company chops. Which one should be used? How do you know if the company chop is real? What does a real China company chop look like? What does Chinese law require of a China company chop? What are some examples of fake company chops?

An official Chinese company chop on a contract says the Chinese company itself has authorized the contract. This means that the company cannot later claim that whomever signed it was not authorized to do so and so the contract should be deemed invalid.

The rules/requirements for Chinese company chops are different in every city, so there is oftentimes no way to know whether a company’s chop is a proper, legally registered and authorized company chop just by looking at it. For this reason, the Chinese courts have decided that they generally do not care and if the document is chopped with something that purports to be the company chop and if the signer of the document is either the legal representative of the Chinese company or a person with apparent authority to act on behalf of the Chinese company based on his or her business card the Chinese courts will usually not invalidate the contract based on a technical argument related to the validity of the company chop or the authority of the signer.

What this means in real life is that if you ever sue a Chinese company for breach of contract and the Chinese company tries to claim that the chop on your contract is not really theirs and its President (per his or her business card) did not have authority to sign on behalf of the company, it will almost certainly lose. Nonetheless, what this also means is that you will have one more litigation hurdle you must jump and on which you could conceivably fall. What if it is a mid-level manager who signs your contract and not the President? Your prevailing on your breach of contract litigation now looks less certain.

Since there are so many kinds of company chops, it is best to insist on the standard round company chop using red ink. Some of these company chops are numbered and some are not. This varies by district and is not an indicator of validity. The newish oval company chops in black and purple are not common and should be avoided for companies that want to take the cautious approach. Unfortunately, some districts have moved to using these oval company chops and so it can be a good idea to determine whether you are in one of these districts. Nonetheless, none of our China attorneys have personally dealt with a Chinese company that did not have access to a standard round company chop with a star in the middle.

The only way you can be virtually certain about the authenticity of a Chinese company chop is to do expensive and time consuming and difficult in-person due diligence. You can visit the head office of your Chinese counter-party and inspect the company chop there and then compare that company chop to the company chop used on previous contracts executed by the company and provided to you during your visit. For this sort of visit to be helpful, you need to be fluent in Chinese and know enough about Chinese law and business to be able to discern whether the older contracts you are being shown are real or not. As you can imagine, this sort of in person due diligence is not ordinarily done, other than on really big money transactions.

Better yet, you send a China attorney to confirm with the government that the company chop that will be used on your contract is actually the company’s real company chop. But this method too is usually reserved for only big money transactions because because getting an attorney to run to the local MOFCOM office is not going to be cheap or easy.

Our firm’s China lawyers are occasionally engaged to do one or even both of the two company chop verifiers described above, but for verifying company chops for more typical China contracts we usually suggest foreign companies do the following:

Ask the Chinese party to provide you with the following four pieces of information:

  1. The signatory’s title, in Chinese and in English
  2. The signatory’s name in Chinese characters.
  3. A scanned copy of the signatory’s business card, in Chinese and English [unless you already have a copy
  4. A copy of the Chinese company’s business license

Armed with this, our China lawyers cannot guarantee anyone that the company chop is indeed authentic, but we can at that point let our clients know whether we are comfortable or not with the chop. By this point we have almost certainly already done basic due diligence on the Chinese company and so we already know it is a legitimate company and so once we get the above information relevant to the company chop, it is the incredibly rare instance when we express discomfort.

The bottom line on China company chops is that so long as the company chop looks authentic and so long as the person signing the contract or document has apparent authority to act on behalf of the Chinese company, that is all that is normally required. Due to the variations from district to district regarding Chinese company chops, on all but really large transactions, it will usually not make economic sense for you to do much more than to get your experienced China lawyer (who must be fluent in Mandarin) the four pieces of information listed above and have them give the company chop a relatively quick perusal.

To a certain extent, China company chops are somewhat overrated. The big issue is whether you are dealing with a person in the Chinese company with authority to bind the company. Are you even dealing with the company and not some rogue employee or third party? Does the company even exist, using the name they have given you? Those are the real issues, and they require real work to resolve. The notion that “the company chop is everything” is no longer a wholly accurate representation of the current state of law in China. Finally, any company chop can be faked. So even if you know what the genuine chop looks like, you do not know whether the one you are looking at IS that chop or is rather a fake.

However, insisting that that any legal document be chopped is still required in China so the basic best practices described above should be used for all your China contracts.

Got it?

 

 

attorney to help with Sinosure Not sure if it’s politics or tariffs or something else, but our China lawyers have of late been getting a rash (and that is the best word for it) of inquiries lately regarding Sinosure cases. For the full import of what I mean by a Sinosure case, I urge you check out Owe Money to China? Meet Sinosure, Leviton Law Firm, and Brown & Joseph and China Sinosure: What You NEED to Know

In response to our getting so many inquiries from companies looking for an attorney to help with Sinosure that we developed the following short list questions we can use to help us determine the Sinosure cases we will, we might, or we will not take on.

 

  • How much is being claimed against you? There is no point in hiring a lawyer if the amount at stake is too low to warrant it.
  • Why have you not paid? This greatly influences our initial strategies.
  • To whom do you owe the money? We usually follow up by asking how important the creditor is to the debtor’s business.
  • Do you have other suppliers in China in addition to the one (or more) that claim you owe them money? We are trying to figure out how important it is that the Sinosure problem be solved quickly?
  • Is it important that you be able to continue doing business in China? This is an important question for determining strategy
  • Do you have any brand names or logos or other IP that you use on any products or packaging made in China? If so, have it registered those brand names or logos in China? It is very common for Chinese companies to register their debtor’s brand names and logos as China trademarks so as to gain leverage. Often, the first thing we do is shore up the IP registrations of a company involved in any sort of business dispute in China. You do not want to go into battle without first patching up a gaping wound.

We then instruct them not to send anyone from their company to China and if anyone from their company is in China right now, we recommend they leave China immediately. See China Hostage Situations With a New Twist.

China litigation lawyers attorneys arbitrationAmerican and European companies often reach out to my law firm after having spent 4-6 months trying to reach a settlement with their Chinese counter-party and then given up. These companies tend to be quite frustrated and I find telling them that what has  happened to them is actually quite common and that Chinese companies rarely settle disputed matters early. Reaching settlement with a Chinese company without a live case or arbitration is very difficult.

Chinese companies tend to view litigation differently from Western companies. Western companies generally know litigation to be very expensive, very risky, and very time-consuming and they typically strive to avoid it. Chinese companies tend to be reluctant to engage in serious good faith settlement negotiations for fear the opposing side will view their having done so as a concession that their position is not all that strong.

Often, Western companies will engage in months and months of settlement negotiations with the Chinese side barely budging and/or constantly changing its negotiating position. Eventually the Western company gives up and calls one of our China lawyers for help in deciding whether it should just walk away or pursue litigation.

Faced with these matters, our China attorneys typically do the following:

  1. Review all relevant contracts.
  2. Gather up all relevant facts.
  3. Research the Chinese company.
  4. Conduct any necessary legal research.
  5. Review the settlement negotiations. Carefully.

Items 1-4 above are going to look very familiar to Western lawyers, but item five less so. This is because, settlement negotiations in the Western world usually cannot be used as evidence at trial or arbitration, but this evidentiary exclusion generally does not apply in Chinese courts or before Chinese arbitral bodies. Because of this, Chinese companies will sometimes drag out settlement negotiations in an effort to get YOU to put forth even lower (or even higher) settlement amounts and then use YOUR lowest/highest settlement offer to argue that YOUR case is worth a lot less or a lot more than you are now claiming. They will also use your factual admissions against you.

Western companies tend not to be prepared for this and we constantly see them saying things in writing like “though we admit we could have been clearer in our instructions to you” or “we do not dispute that if we had spotted this sooner our damages would have been less.” Very roughly speaking, Western negotiators often use “win-win” tactics in an effort to meet their opponent half-way. Using this sort of tactic in trying to settle with a Chinese company can be dangerous. In Chinese Business Negotiation – Guarding Your Virtue, China negotiation expert Andrew Hupert extorts companies “to stop bargaining like an American and give away nothing for free”:

Are you a withholding, passive-aggressive manipulator who makes promises he can’t or won’t keep? Well, maybe it is time to start — at least in China. No one buys the cow when they can get the milk for free. In China, technology, IP and business methodology is the milk of profitable transactions. If you’re giving it away too early or too cheaply, then you are the expensive cow no one buys. Sorry.

*    *    *    *

Americans new to Chinese negotiation think they can build up a bank of good will and trust by “front loading” their benefit package. Novices think that doing business in China is about having Chinese partners owe them favors. They are kidding themselves — and forcing conflict. If the Chinese side of the deal feels that it is ahead of the game, their best move is to terminate the partnership and lock in their gains — not wait around for you to collect on what you feel is owed to you.

Hupert is correct. According to Hupert, Americans seek to demonstrate their good will be over-delivering, hoping to build up a goodwill bank that will be reciprocated by the Chinese side. The Chinese side often encourages this by talking up the importance of the relationship or by acting as though it really truly does want to resolve the dispute. I have found that Korean and Japanese companies value “the relationship” considerably more than the typical Chinese companies, but far too many Americans think China and Korea and Japan are pretty much the same on this, but they most certainly are not. Hupert explains China “relationships” in the real world:

Win-Win type negotiators often feel that the best way to approach a negotiation is to demonstrate their good will, trust and value by “over-delivering.” They feel that if they provide the Chinese side with what it wants now (technology, brand, product designs), that the Chinese side will feel obligated to reciprocate later (distribution, execution, quality control). The western side has read up on guanxi and harmony, and believes this is the way to develop loyalty and respect.

Hupert sets out five ways to protect yourself in and from China and the following portions of his advice apply to settlement negotiations as well:

  • Don’t project your desires on your Chinese partners. Find out what they really want. Assume nothing.
  • Know what you want. Withholding is easy. Knowing what you want from your China counter-party is tougher. Good negotiators in China are able to articulate a graduated list of goals and demands. Prepare for a “YES” when you negotiate.
  • Ask for a specific plan for your future together and negotiate the specifics of what the Chinese company is offering.
  • Walk away smiling, if you have to. Some Chinese negotiators are too grabby for your own good. Don’t stick around hoping things will magically get better on their own because they won’t. If a China deal is going to die, than quick and clean is the best way. Don’t hang around to get abused and battered, praying that they’ll eventually see what a great partner you could be. Get the hell out of there now.

Despite the long odds of settling with a Chinese company without first filing for litigation or arbitration, our China dispute resolution lawyers usually (but certainly not always) counsel our clients to at least try, but to be careful when doing so. Among other things, we urge them to do all that they can to protect the confidentiality of their settlement communications and yet still be mindful of every communication they send. Make clear on all your settlement communications that they are “Without Prejudice and for Settlement Purposes Only.” Doing this will make it less likely your communications show up at trial or arbitration, but it will not guarantee it. We also urge them not to move too quickly off their initial positions, unless and until they see real and permanent movement from the other side. We also work with them to help figure out when good faith settlement negotiations have ended and why at that point the risk of continuing to talk usually outweighs the possible benefits of doing so.

What have you seen when trying to settle with a Chinese company before litigating or arbitrating?

For more on negotiating with Chinese companies check out the following:

Sinosure, Leviton Law Firm, Brown & Joseph
Sinosure wants you

Sinosure and its US collection companies and law firms (mostly through Brown & Joseph and the Leviton Law Firm) seem to be stepping up their collection efforts against American companies that allegedly owe money to their Chinese suppliers.

First a bit of background on the Sinosure players that my firm’s international litigators see showing up again and again. I am providing this to give you background on how Sinosure typically handles its U.S. collection claims and on the people with whom you will likely need to deal.

The first to appear on behalf of Sinosure is usually an Illinois based company, Brown & Joseph. Brown & Joseph calls itself “a commercial and credit collection firm” and our clients pursued by Sinosure usually get an email from Brown & Joseph stating something like the following (I changed the company name and the amount to remove any identifiers:

Please allow this correspondence to serve as notice that this firm has been retained by China Export & Credit Insurance Corporation (Sinosure) on behalf of their policy holder Dongguan ________Sewing Machine, Ltd.

All further communications regarding this matter should be directed to my office.

The claimed amount of default is $345,862.23 in which the policy holder has now filed for credit insurance due to nonpayment.

Your immediate cooperation is needed to resolve this issue out of litigation. Pursuant to the attached Trust Deeds all rights have been assigned to Sinosure to collect this on their behalf.

Your failure to cooperate may result in future import and credit implications of goods from the People [sic] Republic of China.

With that being said, please review the attachments and acknowledge the invoices and amount owed of $345,862.23 for verification purposes.

In addition, I will anticipate your payment in full via wire directly to our firms [sic] escrow account. The wiring instructions are listed below. Please email me with the wire confirmation number and upon receipt I will confirm closure of this case.

Domestic Wire Transfer:

Routing Bank: First Bank & Trust, Evanston IL

ABA: 071925538

Account #: 4084168

Beneficiary: Brown and Joseph, LTD

If you are unable to remit payment in full, you will be required to contact me directly before the end of business tomorrow to discuss a reasonable payment plan for our client to review.

I look forward to your immediate response as I only have a limited time to resolve this file in my office prior to litigation.

This letter threatens both litigation against the U.S. company that allegedly owes money to a Chinese company and it also threatens to impact the U.S. company’s “future import and credit implications of goods from the People [sic] Republic of China.” I am not sure whether the threat to future imports and credit from China is deliberately unclear, but what Brown & Joseph seems to be saying here is that if you do not pay, Sinosure will cease providing insurance on your credit purchases from your Chinese suppliers. U.S. companies that buy products from China on credit need to take this threat very seriously.

Don Leviton seems to be the head attorney on Sinosure’s U.S. matters. Mr. Leviton’s Linkedin profile lists him as “counsel” to Brown & Joseph and also as a Principal at Atlas & Leviton. Here is Don Leviton’s profile on Brown & Joseph. Donald Leviton’s Avvo page lists him as a lawyer at the Leviton Law Firm in Hoffman Estates, Illinois. Here is what appears to be the Leviton Law Firm Website, but because it does not list any contact information nor any attorney names, it is possible this is not Donald Leviton’s law firm or that it was and no longer is. The Leviton Law Firm has this to say about commercial collections:

While not always possible, it was our philosophy and goal to negotiate amicable settlements and workouts between our clients and debtors in order that the parties may attempt to continue their business relationships in this very challenging economic environment.

Note how it says “it was” their philosophy. It’s not clear whether putting this in past tense is a typo, bad grammar, or if indeed its philosophy has changed. But I can tell you that from my firm’s dealings with Sinosure (when represented by Don Leviton or Leviton Law Firm or Brown & Joseph), I would use words like “relentless” or “unyielding” or even “tone deaf” to describe the philosophy of those who are tasked to collect a debt on behalf of Sinosure. I mention resolute and unyielding because it is difficult to impossible to get any monetary compromise and “tone deaf” because it is not uncommon for Sinosure to seek from foreign companies more than they appear to actually owe and then still not back down at all on the amount.

Elizabeth Dawson, who appears to be a Senior Account Executive, International Claims and Litigation, for Brown & Joseph seems often to be the first point of contact on a Sinosure collection matter. It is not clear whether Ms. Dawson is an attorney but I could not find an Elizabeth Dawson on Illinois’s roll of attorneys. Our clients pursued by Sinosure have also dealt with Michael Jones from Brown & Joseph, who also may or may not be an attorney. I cannot find information about Michael Jones online and so it is possible Michael Jones no longer works for Brown & Joseph and no longer represents Sinosure.

Brown & Joseph also seems to describe itself as a law firm and boasts of its international debt collection prowess and of its China expertise:

U.S.-Based Collection Law Firm.

Brown & Joseph, Ltd. is the leader in North American debt recovery for Chinese manufacturers who export goods all over the world. After 15 years of international recovery experience successfully handling cases for the groups that oversee credit insurance on exports, Brown & Joseph can offer significant resources that help to locate shipments, resolve disputes and gain immediate settlements, overcome language and cultural barriers, and recover money owed.

Our U.S. based firm has worked with many leading global trade credit insurers to reduce write-offs, protect their interests by legally securing debt in the local domicile, all while keeping your out of pocket costs minimal by working on a contingency basis. If there is no money recovered that is owed to you, there is no fee. Our contingency based fees for our recovery services (no success-no charge) apply the same to accounts whether the debtor company is foreign or domestic.

The #1 International Debt Recovery Agency in China

Over the past 11 years Brown & Joseph has come to be recognized as the #1 most effective collection firm recovering from U.S. businesses that owe international credit grantors….

Between China and the U.S., much like between any two countries, if you are not able to efficiently bridge [sic] gap between language and cultural barriers you will not succeed.  Brown & Joseph has succeeded. We currently have lawyers in both the U.S. and China and unlike most law firms, we perform all of our services on a results oriented contingency basis. We are only paid when we collect.

Am I the only one who finds it ironic that in the very sentence in which Brown & Joseph brags about being a bridge between language and cultural barriers it makes an obvious linguistic error?

What though should you do if Sinosure, Brown & Joseph, the Leviton Law Firm, Don Leviton, Michael Jones, Elizabeth Dawson — or, more likely some combination of these companies and people — are knocking at your door? There are many strategies you can employ but we are reluctant to reveal them online because we do not want to tip off the “enemy” to how we combat them.

I can though tell you that the first thing you should do is to make sure your intellectual property is in order in China, especially your trademarks. If Sinosure/Brown & Joseph/Leviton Law Firm/Donald Leviton/Michael Jones/Elizabeth Dawson are on your tail it is because a Chinese company is contending you owe it money. That Chinese factory is unhappy about not getting paid and one of the things it can (and often does) do to gain leverage against you is to register your brand name as its own trademark in China. If it does this, it will own “your” brand name as a trademark in China and this will allow it to stop your products from being made in China with your name on them and to stop products with your name on them from leaving China. See 8 Reasons to Register your Trademark in China. This sort of trademark usurping became so common in China it is now technically forbidden. Your factory company cannot register or hold your brand name as its own trademark. However, because pretty much every company in China is now aware of this prohibition, they also know exactly how to get around it. If you owe $345,000 to a factory in Dongguan, it will not register your brand name as its own Chinese trademark; instead, the owner of the Dongguan factory will get his cousin in Shenzhen to register your brand name as his company’s trademark, making it difficult to impossible for you to challenge it.

The best tactic is to register your brand names in China as a trademark NOW. See China: Do Just ONE Thing: Register Your Trademarks. And by now, I mean before Brown & Joseph or Leviton Law Firm demanding you pay Sinosure money you allegedly owe. But if you are too late for that and already in trouble with a Chinese company, if you act really quickly you may be able to preserve your name in China, but you need to be really careful. If your company is alleged to owe a factory company in Dongguan $345,000 and you have a trademark (or even a copyright or a patent) in China, those assets are sitting right there in China for seizure by whomever you owe the money. If a Chinese court enters a judgment against your company whatever China IP you have registered in your company’s name will be sitting right there in China available for seizure as payment of the judgment. What can you do to avoid this problem?

We have seen companies set up multiple companies with one of its companies buying products from China and another company owning its China trademarks. This can provide protection before you have a Sinosure debt collection, but if you are in the midst of such a problem the solutions get considerably more complicated.

The best protections against Sinosure are best enacted before you have a Sinosure problem. There are protections and defenses against Sinosure after it seeks to collect from you, but we cannot reveal those here because we do not want Sinosure and its minions to know what those are.

For more on dealing with Sinosure and China manufacturing disputes, check out China Sinosure: What You NEED to Know.