China

There are three rules for making contracts enforceable in China:

  • Make the jurisdiction a China court.
  • Make the governing law Chinese law.
  • Make the governing language Chinese.

American companies routinely insist on contract provisions that effectively render their contracts unenforceable in China. By their own efforts, they make their contracts worthless, much to the amusement of the Chinese side of the transaction.

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It is perhaps a truism by now, but if you are doing business with China, you need to be on your guard against fraud. Recently, an old chestnut known as “the switched bank account scam” has seen a dramatic resurgence, because it has become so easy to perpetrate and so difficult to prevent.

Here’s how bad things have gotten: a year ago Interpol released a Purple Notice detailing the scammers’ M.O., but my firm’s China lawyers are receiving even more frantic phone calls now than last year….

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I get at least an email a week from law students seeking advice on what they should be doing to secure a law firm job involving China. This post is my once and future answer to those emails.

Two kinds of firms have a China law practice: mega firms (I began my career at one) and high end boutiques (I founded one). A small number of in-house lawyers also do China work, but nearly all of these lawyers went in-house after working for a mega firm or a high end boutique. Both kinds of firms generally interview only law students with top grades from highly rated law schools.

This means that entry-level China law jobs in the United States are generally limited to only the best students at the best schools. On top of this, most mega firms do not have recent graduates work on international law matters because they believe associates must first master corporate law or tax law or dispute resolution or labor law or IP law or whatever before being tasked with the additional layer of complexity of an international matter.

So what are the options for a law student who wants to practice China law?

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Whenever clients ask about filing a trademark in China via the Madrid System, our answer is simple: filing a national application directly with the Chinese Trademark Office (CTMO) is better.

China’s trademark system is complicated and overseen by oftentimes capricious examiners, especially as compared to the one-size-fits-all Madrid application that makes registering a trademark in China seem so easy. All you have to do with a China trademark filing via the Madrid System is check the box marked “China.” This lulls Madrid applicants into a sense of complacency, but all too often the result is a rejection that could have been avoided with a national application in China.

Madrid applications are supposed to be cheap and quick, but fixing Madrid problems after the fact is neither. This “Madrid problem” is exacerbated by U.S. lawyers comfortable filing in Madrid but with no experience filing in China.

Trademark prosecution in China is highly mechanical. For the vast majority of applications, you file an application and then wait 18 months for your trademark to be registered or rejected. (A slight oversimplification, but not by much.) China has no CTMO equivalent to a USPTO office action, no back-and-forth with trademark examiners, and no chance to amend an already filed application.

For this reason, the meaningful work for Chinese trademark applications occurs before you file the application…

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In an Atlantic Monthly article, The View from There: What living in England, Japan, and China has taught one American about the character of his own country, James Fallows discussed how easy it is to misunderstand other countries and how Americans misunderstand China:

When living in Japan, I heard accounts from many Japanese who had gone to the US for business or study in the 1950s, after the Allied occupation ended. They looked at the factories and the farms and the vastness of America and asked themselves: What were we thinking? How could tiny Japan have imagined challenging the United States? After the Soviet Union fell and the hollowness of its system was exposed, many Americans asked: What were we thinking about “two superpower” competition with the USSR? Its missiles were lethal and its ideology was brutal and dangerous. But a rival to America as an overall model? John F. Kennedy was only one of many to suggest as much, in his 1960 campaign references to the prestige gap as well as missile gap that had opened. Eventually, we all learned there was no comparison at all. I think if more Americans came to China right now and saw how hard so many of its people are struggling just to survive, they too might ask: What are we thinking, in considering China an overall threat? Yes, its factories are formidable, and its weight in the world is huge. But this is still a big, poor, developing nation trying to solve the emergency of the moment. Susan Shirk, of the University of California at San Diego, recently published a very insightful book that calls China a “fragile superpower.” “When I discuss it in America,” she told me, “people always ask, ‘What do you mean, fragile?’” When she discusses it here in China, “they always ask, ‘What do you mean, superpower?’”

I thought of Fallows’s article after speaking last week on China law before the county bar association. My talk had been mistakenly “advertised” as being about “doing business in Asia.” Wanting to disabuse anyone of the notion that I would be providing insights into doing business in all of Asia, I began by making clear what I would and would not be discussing…

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Looking to do business with a Chinese company? Want to know whether that Chinese company is worthy of your business and your trust? How do you do get information on a Chinese company when certain private investigatory work in China is illegal?

The first thing you should do is conduct a Chinese-language internet search of your potential Chinese counterparty. This sort of search is not likely going to be enough to make you feel good about going forward with a $10 million deal, but it frequently can give you enough negative information on your potential Chinese counterparty to convince you not to do any deal at all.

Next, do your due diligence the old fashioned way. Ask your potential Chinese counterparty to provide you with its government registration documents and, if relevant to your deal, its accounting and tax records as well….

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It is almost always a waste of time to sue Chinese companies in United States courts. But this seems to be news to many American lawyers.

Just about every month, my firm gets a call from a lawyer somewhere in the United States expecting us to jump at the chance to help enforce a multi-million dollar U.S. court judgment against a Chinese company.

The problem is China does not enforce U.S. court judgments…

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I re-watched the movie The Painted Veil (the 2006 version with Naomi Watts and Edward Norton) this weekend. It’s a decent movie with a pretty thin plot, but I love its cinematography and its depiction of 1920s China.

I also love the lessons it teaches for surviving China.

The movie does a good job conveying how China viewed its foreigners back then. That is, China belongs to the Chinese, and they do not particularly want foreigners there — even doctors there to save lives. Foreigners are in China only to the extent that it makes sense to have them there, and they will never be treated the same as Chinese people.

When it comes to modern-day Chinese commercial law enforcement, the perceptions and the treatment of foreigners have not changed all that much…

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How often do you stop to think about the ubiquitous “Made in China” label? If you’re a China lawyer, you should think about it almost every day.

To convince recalcitrant clients of the need for product liability protection for the products they are having made in China, I sometimes send them the following deposition questions asked of a U.S. manufacturer whose China-made product had badly injured a child:

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Dan Harris

I figured my first Above the Law post should be something aimed squarely at those who generally read this blog: American lawyers. I also figured I should lead with what I do best and that is scaring the heck out of people.

So I am going to write about four common and egregious mistakes my law firm’s China lawyers often see American domestic lawyers make when representing their clients in doing business with or in China, along with a very brief analysis of what causes American lawyers to make each sort of mistake.

1. Many years ago, a lawyer in the Midwest called us to discuss his client’s desire to form a company in China. This lawyer did not even tell us that his client was in the room. The lawyer asked us the minimum capital the Chinese government would likely require his client put into a Chinese bank to be able to start a business (a WFOE) in China. Based on the nature and size of the business, we estimated $6 to $8 million. The lawyer asked us to confirm that a portion of the required $6 to $8 million could come from factory equipment not cash, and we assured him that it could. At that point, he said, “good,” because his client had already purchased $5 million in equipment and shipped it to China.

We then had to tell him those equipment purchases could not count because they had not been previously designated as going to the WFOE. The lawyer then complained about how his client could not afford to come up with another $5 million and how China was putting form over substance. To which we could say little more than, “yeah”…

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