China Lawsuits: Get Ready Now

China litigation lawyers

Yesterday’s post, China Civil Litigation: Tain’t No Big Thing, was on how litigation risks for foreign companies doing business in China or with China are considerably lower than, for instance, the litigation risks those companies face by doing business in the United States or with the United States.

My explanation for this was two-fold: one, damage awards are typically much lower in China than in the United States, and two, when Chinese companies do pursue litigation in the United States they are often unwilling to spend the money on either the right lawyers or on seeing the case through to a high dollar conclusion. But none of this means Chinese individuals and companies are not litigious, because our experience has been that they most certainly are:

Our international dispute resolution lawyers view Chinese as overall being litigious in the sense that if someone dies or gets hurt or gets fired, there will be a claim made. But the difference is that the employer company (or a third party company) can usually strike a deal fairly quickly and so lawsuits do not necessarily result. And here is the key: the settlements are low by Western standards. Really low. Paying a family $100,000 for someone’s death is still a very high amount in China and if you hear of an amount like that it usually means the person who died had a high level job and a family to support. Death of a worker outside a big city might mean $35,000 in settlement or in a judgment.

And the idea that Chinese individuals and companies are plenty lawsuit-happy was emphatically backed up in an excellent article by Susan Finder in Forbes Magazine yesterday, entitled, Can You Be Sued In China? What Chinese Court Filing Reforms Mean For Business. Ms. Finder starts her article by rightly noting how “many foreign companies doing business in China do not think about their litigation strategy–until it’s too late” and then goes on to state how recent China “court filing reforms mean it is easier than ever for people (and companies) in China to file lawsuits and that foreign invested companies are often regarded as deep pockets for Chinese litigants.”

She then uses Walmart as an example, noting how her search of the Chinese court judgment database found 2000 cases involving Walmart with the following three types of cases being the most common:

  1. Employees challenging Walmart’s decision to fire them.
  2. Trademark infringement cases against Walmart for selling allegedly infringing goods.
  3. Patent infringement cases against Walmart for selling allegedly infringing goods

My list of the most common types of cases involving Chinese plaintiffs against foreign companies (based solely on the cases for which one the lawyers in my law firm got contacted), would absolutely include the above three. But that list would also include two more: we see a ton of cases where a Chinese manufacturer is threatening (and far more rarely, actually suing) a Western company for having failed to pay in full for products manufactured by the Chinese manufacturer. Ninety-five percent of the time these cases arise because the Western company is claiming to have received bad product from the Chinese manufacturer. Five percent of the time, the Western company is experiencing cash flow problems. The other sort of case I would add to the mix of those our our lawyers most often see are cases involving an injured employee or customer.

But unlike Walmart, which can easily afford both the costs and the risks of defending its cases through trial and even through subsequent appeals, most of our clients are more inclined to seek a quick and relatively low settlement, which is something we are nearly always  able to achieve, especially in the employment context.

Ms. Finder’s article nicely lays out the following China litigation “takeaways if you have a business in China”:

1. You should evaluate your company’s China litigation risks. I completely agree.

2. “Chinese civil litigation has abbreviated deadlines and so it is prudent to make arrangements ahead of time.” I completely agree. If your manufacturing facility is going to be in some small Chinese city in the middle of nowhere, now — not later — is the time for you to start researching and interviewing local Chinese attorneys to defend you in any subsequent litigation.

3. “Manufacturing companies have different litigation risks from those in retail, such as Walmart. All companies should review their supply chain and employment documentation and procedures. Supply chain documentation should contain appropriate representations and warranties that product is non-infringing and meets purchaser’s standards. Companies should anticipate that some terminated employees will challenge that [termination] decision and so should be sure that major personnel decisions follow legal procedures and are properly documented.” I completely agree. Call your China labor lawyer before you terminate anyone, not after. I can assure you that doing this will save you money and hassle. See How To Terminate China Employees Legally and Terminating China Employees: The Basics. Ms. Finder notes that employment litigation was up 25% in 2015 year on year.

4. “If you are entering the Chinese market, register your English (or other foreign language trademark) and Chinese language trademarks at the same time.” Again, I completely agree.

Any additional recommendations for preventing a China lawsuit from sneaking up on you?

3 responses to “China Lawsuits: Get Ready Now”

  1. Great information, Dan. I didn’t know that foreign companies were becoming more of a target for civil suits lately. It’s especially interesting to know that Chinese manufacturers make up the bulk of the cases you see. Thanks for sharing.

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