China Litigation for Foreign Companies: It’s a Good Thing

In China’s Patent-Lawsuit Profile Grows, the Wall Street Journal wrote how China is increasingly becoming the venue of choice for foreign company patent litigation.

Thats right. China.

The WSJ article starts by focusing on a recent patent-licensing lawsuit brought in China wholly by choice by a Canadian company, WiLAN Inc., versus Japanese electronics company Sony Corporation:

Ottawa-based WiLAN Inc., which earns revenue by licensing its patents, filed a suit against Sony last week in a court in the eastern Chinese city of Nanjing, alleging that the Japanese company’s smartphones violated its wireless-communication-technology patent, according to the filing reviewed by The Wall Street Journal.

According to the article, WiLAN’s lawsuit “is an indication of how China is becoming a more attractive place to seek legal action for companies that accumulate patents for litigation and licensing purposes.” China is becoming a good venue for such lawsuits for two salient reasons. One, such lawsuits in China “are less time-consuming and less costly than in the U.S. and the country’s courts have developed rapidly over the past several years.” And two, “if an injunction is granted in China, it wouldn’t only apply to products sold in the country using the patent in question, but also to the exports of such goods made in China, giving the plaintiff a possible bargaining tool for a licensing deal.”  Let’s break all of this down.

  1. China is a good place for patent lawsuits because China lawsuits move quickly. Absolutely true, and something we have been screaming from the rooftops (not literally) for many years. We made this point back in 2013, when we stated that “the advantages for a plaintiff include a fast docket (typically less than a year to trial) and generally lower overall attorney’s fees (than the United States) due to a lack of discovery.” Back in 2011, in The Basics on China Litigation, we made a similar point by noting that “once a case begins in a Chinese court, things move fast. Very fast.” Way back in 2007, in Enforcing Contracts In China. Way, Way Better Than You Think, we touted China as a great venue for litigating your contract disputes, beginning by noting how “Chinese courts do very well at enforcing clear written contracts” and noting how the World Bank (and this was back in 2007!) ranked China at number 18 in enforcing contracts, higher than the United Kingdom at 23 and Japan at 21. Because lawsuits move quickly in China, lawsuits in China cost far, far less than in the United States.
  2. China’s “courts have developed rapidly over the past several years.” True, and also something we have been saying for quite some time. In How To Sue A Chinese Company [link no longer exists] we noted how it often makes sense to sue even Chinese companies in Chinese courts because China does not enforce United States court judgments (or the court judgments of most other Western countries) and because China’s court system “is more navigable than many American lawyers believe it to be” and “foreign companies can and do regularly win cases against Chinese companies in Chinese courts.” Our China lawyers often tell our clients is that they can generally expect a fair shake in commercial lawsuits against private companies in China, especially in China’s more international cities. So yes, even suing Chinese companies in China’s courts often makes good sense. And when it comes to IP litigation, China has specialized IP courts whose judges tend to be well versed in intellectual property matters, both factually and legally. And unlike in the United States where IP litigation often involves a battle of the experts with a jury ultimately deciding, in China, the IP  Court judges usually bring in their own experts to help them with more complicated intellectual property issues.
  3. “If an injunction is granted in China, it wouldn’t only apply to products sold in the country using the patent in question, but also to the exports of such goods made in China.” Ponder this for a minute. If you can win an IP lawsuit in China, it may serve as the equivalent of winning an IP lawsuit for the entire world. If you make your XYZ widget in China and if your competitor makes its XYZ widget in China and if China is the only place in the world that can make XYZ widgets at a competitive cost and your prevailing on an IP lawsuit in China can block your competitor from making its XYZ widgets in China, your prevailing on an IP lawsuit in China could very well have the effect of completely blocking your competitor from the XYZ widget market worldwide. This is why we are constantly begging foreign companies to register their trademarks and their patents in China. Because if they do not, they run the very real risk of someone else doing so and blocking them from manufacturing in China. See China: Do Just ONE Thing: Register Your Trademarks AND Your Design Patents.

According to the Wall Street Journal article, China is becoming a patent litigation hub, along with the United States and Germany:

Traditionally, the U.S. has been the global hub for such lawsuits, but in recent years patent-licensing firms are looking for new places to bring lawsuits, lawyers and legal scholars say. While Germany is already becoming a popular venue for patent lawsuits because of its sophisticated and efficient court procedures, some potential litigants are also starting to consider filing their cases in China.

Lawsuits in China: coming soon to a foreign company near you.