Excellent article in Asian Lawyer Magazine by Fangda lawyer, Gordon Gao. The article is entitled, “Dangerous Myths About Litigating in China.“
The article puts forth the following propositions:
1. Big Western companies often do not know how to litigate in China. They think the way to litigate in China is by having their BigLaw Western firm run everything and that is a big mistake.
2. Big Western companies often lose and lose big in China and then when that happens they blame China.
He is 100% right and I will raise him one by saying the same thing is true in reverse with respect to Chinese companies in the United States and the same thing is true just about everywhere.
Let me explain.
Gao’s thesis is that multinational companies “allow their beliefs and assumptions about cultural differences to prevent them from seeing the reality of the [litigation] situation in front of them.” He then talks about a China IP litigation matter lost at the lower court by Schneider Electcic and then settled by Schneider without pursuing all possible appeals. Gao notes how “to many observers, this case offered a clear example of how Western multinationals simply cannot get a fair hearing in Chinese courts,” but Gao writes on how “things could have turned out very differently” for Schneider.
Gao lists the following as what went wrong on Schneider’s case:
Schneider hired multiple law firms, both Chinese and foreign. On an informal basis, Schneider consulted still other firms (including my firm, Fangda Partners, on an unpaid basis). But since foreign firms are barred from appearing in Chinese courts, the firm that actually argued the case before the court was a relatively small Beijing firm. However, strategy and arguments were chiefly formulated by a large and well-known British firm, which coached the Chinese firm.
If Schneider had been sued in any other country, would it have used the same strategy? I doubt it. In Europe or the United States, Schneider would have immediately sought the best litigators with experience in the relevant jurisdiction. Instead, it opted for a team of firms led by a familiar international name–albeit one that, by Chinese law, could have zero experience of Chinese courts.
In contrast, Chint hired only one medium-sized Chinese firm hailing from Wenzhou, where the case was heard. From accounts I received from Schneider in-house lawyers who attended the trial, these shrewd and articulate lawyers outmatched their Beijing adversaries in court thanks in part to their thorough understanding of the issues.
Gao then talks of how he thinks Schneider still could have prevailed on appeal, but instead, chose to settle:
So why did Schneider settle for more than half the damages award? The president of Schneider’s China operations told the Financial Times at the time that the company was “happy to stop fighting.” (A spokesperson for Schneider declined to comment for this article.)
Perhaps the company had had enough of what many regard as the unpredictable, inscrutable Chinese court system. Avoiding the courts at any and all cost has long been the dominant litigation strategy of multinationals in China. Like poor Bouriscot [of Madame Butterfly fame], they can become so fixated on the differences between China and the West that they cast more sober analysis aside.
Now I have absolutely no idea what happened in the Schneider case (beyond what other people have said about it) nor do I have any idea of what Schneider’s chances on appeal would have been, but I can tell you that I have many times seen what Mr. Gao describes. I have seen it with foreign companies in China and elsewhere and I have seen it with Chinese and Korean and Russian companies in the United States. I have even seen it with American companies in other states. The “it” to which I am referring is an over-reliance on existing counsel and an unwillingness to delegate sufficient authority to local litigation counsel.
I would love to be able to tell my own stories to be able to back all of this up, but I cannot talk about the times I have seen this sorts of mistakes, without either revealing client confidences, angering clients and attorneys who I do not wish to anger, or both. So you will just have to trust me when I say Mr. Gao is speaking the truth and that when you have a case in a foreign country, you should seek out top-flight local counsel and give them enough authority to actually run your case.
When you are involved in a litigation matter in a foreign country, you are on someone else’s turf and usually the best way to try to neutralize that is to use the right local attorneys. I do not care how good your United States or British attorney is, that attorney does not know the local Chinese courts and judges as well as Chinese lawyers who are allowed to appear in Chinese courts. Your regular counsel can and should play a role in much of your litigaiton oversees, but that role should usually be more in the nature of in-house litigation counsel, not first chair trial counsel.
What do you think?