Beware of China Lawyers

Yesterday I attended a USPTO webinar, How the U.S. government can help companies protect and enforce their IP in China. It was informative and I highly encourage anyone interested in IP protection in China to attend future webinars. Moreover, it brought back memories of my own stint in the government helping American companies protect their IP in South China, in the time before specialized IP courts and when raids against counterfeiters by Chinese law enforcement were rare.

I do take issue with one piece of advice given during the webinar, namely, to rely on local China counsel for IP-related legal needs. While in most instances China service providers must be brought on at some point, smart businesses will do so in coordination with U.S. counsel with China experience (for simplicity’s sake, I am focusing on American companies; in places like the UK, companies might be able to find suitable counsel within their own jurisdiction).

Why? For a number of crucial reasons.

First, although it is true that some Chinese firms now “speak English,” that is insufficient to adequately represent a foreign company. You want to ensure clear communication between you as a client and your attorneys, and that goes far beyond language. You want an attorney who understands the overall context in which you are operating, and that requires a legal and practical understanding of your home base and important markets. When explaining how things work in China, you want an attorney that understands your baseline knowledge. For instance, an American client might not fully grasp the implications of China’s first-to-file system if it is not contrasted to the first-to-use system that exists in the United States.

In addition to the issue of communication,  you want an attorney who understands that you are crafting a China brand protection strategy, which may be incorporated into an existing worldwide brand protection strategy. Registering IP rights is an essential part of a brand protection strategy, but it is not all that goes into it. Consider the question of which trademarks you should register in China, a topic that my colleague Matthew Dresden recently discussed in How and Why to Trademark in China:

You should trademark anything that identifies your company or your brand or your product or your service that you can. If your company is Premier and your product is Alpha and your logo is a giant A and you sell a special sort of cloth headband, you should at least consider registering the following trademarks:

• • The word “Premier” in Roman script
  • The word “First” in Chinese characters
  • The Mandarin word that sounds closest to “Premier”
  • The logo

If you do not choose a name in Chinese and register it, the Chinese consumer will almost certainly choose a Chinese name for you and you may find you do not like that Chinese name one bit or that the trademark on it has already been taken.

There are essentially three methods for picking your Chinese name. You can translate your English or other foreign name directly into Chinese. Registering the word “first” in Chinese characters is an example of that. The disadvantage of a literal translation is that you will essentially have two different names for your same product or company and this can cause confusion in the market. The second option is to use a Chinese character name that sounds like your foreign name. If you go with a phonetic version of your foreign name, you must make sure that you know what the Chinese characters you are using actually mean in Mandarin and Cantonese. Otherwise, you might find yourself with a Chinese name that means something you really do not want to be saying. Oftentimes, the best solution is to choose a phonetic version of your name that also conveys something you wish to convey.  Coca Cola is the classic example of this. Its name sounds like  “Ke Kou Ke Le,” which means “delicious” and “happy.”

You will also need to consider in what category(s) to register whatever trademarks you deem necessary from the above. Returning to the example of the headband, there are at least two categories that make sense: hair accessories and clothing. If you register your trademarks in just one, you leave a massive opening for a competitor to step in and register the your same trademarks on the same product in the category you did not choose. If that happens, both of you will be able to sell the headband using the same trademarks. Not choosing all of the right categories for your trademarks can be as bad as not registering your trademarks at all.

As you can see, there is quite a bit of thinking that goes into a brand protection strategy. You have to take into account marketing considerations. You need to consider Chinese languages other than Mandarin and traditional characters that are not officially used in China. You also need to anticipate moves by competitors and/or counterfeiters. Are there IP attorneys in China fluent in English that can bring this kind of strategic thinking to their representation? Sure, but they will be few and far between, and likely charging fees comparable to U.S. attorneys, because they are probably working at an international law firm or a Chinese firm that competes in that segment.

It is hard to address this issue without engaging in generalizations. However, I could not, after more than a decade of working with lawyers and law firms in China, tell you with a straight face that dealing with them will be just like dealing with a lawyer in the United States or the United Kingdom. And this is not a dig at lawyers in China. They are trained and learn to be lawyers in China, where the expectations on the legal profession are different.

During law school, I got to study together with foreign attorneys getting their LLMs at Notre Dame. These guys were already top-notch lawyers in their countries, and went on to even greater things. Ask these guys about the finer points of the Antarctic Treaty or the subsidiarity principle found in the Grundgesetz, and you would get detailed, coherent explanations. However, some of them struggled with even simple research on U.S. legal issues, especially where it involved case law. (Needless to say, I shudder to think what an opinion on German constitutional law drafted by me would look like).

Language barriers and differences between how law is generally practiced in each country make working directly with a lawyer or law firm in China a daunting prospect for American companies, but these are not the gravest issues. An even more troubling reality is the lack of effective protections for attorney-client communications, which is particularly troubling when you are entrusting an attorney with information that is proprietary and/or of value to competitors. As Dan Harris and I discussed in The Attorney-Client Privilege and Why It Really Really Matters When Doing Business Internationally, Especially in China These Days,

In China, for example, lawyers have a general duty of confidentiality (Art. 83, Law on Lawyers), but there is nothing to stop them from bearing witness against their clients in civil cases. And though Chinese criminal defense attorneys can choose to maintain confidentiality (Art. 46, Crim. P. Law) regarding their cases, the same discretion does not legally extend to other lawyers. Under this legal framework, an attorney defending someone accused of tax evasion could choose not to testify against their client, but the defendant’s tax attorneys would not be similarly protected.

In addition to these legal considerations, there are also practical ones. American lawyers are rightfully terrified of disciplinary action. Bar associations take complaints seriously and, for the majority of lawyers, disbarment would be a critical blow, both financially and reputationally. This is not to say that lawyers in China are not subject to disciplinary oversight from the government and bar authorities: they are. However, a study of disciplinary cases in Zhejiang found that only 11 out of 122 cases reviewed involved “some aspect of client protection”. Political concerns and the protection of law firms’ interests were usually the driving force.

It is hard to see how the average Chinese lawyer would be fearful of the consequences of revealing confidential information, especially if the affected client is a foreigner, even more so these days if it is an American company. This means you are in a vulnerable situation if your Chinese lawyer stands to benefit by revealing information you provide. Perhaps your lawyer has another client who would just love to take a look at that new patent application of yours. Perhaps your law firm stands to benefit by tipping off your competitor before it files your trademark application. Or maybe it will be as simple as revealing that you told them that you would have paid $10 per widget, not just the $8 written in your contract. Worse yet, what if your lawyer is in hot water with governmental authorities and reporting the missteps of a foreign company will help them curry favor? Trust us when we say that all of these nightmare scenarios are real life possibilities.

Mindful of all this, savvy clients often take their China work to lawyers bound by the strict confidentiality rules of foreign countries. Of course, on occasion some information may need to be revealed to Chinese co-counsel, but it will be done in a careful, need-to-know basis.

Finally, keep in mind that working against your interest as client might be your lawyer’s patriotic duty in China. According to the Law on Lawyers, “In his legal practice, a lawyer must abide by the Constitution and laws, and strictly observe lawyers’ professional ethics as well as discipline governing their legal practice . . . . In legal practice, a lawyer shall subject himself to supervision of the State, society and the parties concerned.”

Abiding by the Constitution sounds lofty, but it is nothing from which foreign clients should draw comfort. The very first article of the Constitution states, “The People’s Republic of China is a socialist state under the people’s democratic dictatorship led by the working class and based on the alliance of workers and peasants . . . . Disruption of the socialist system by any organization or individual is prohibited.”

In other words, lawyers in China are expected to be loyal to the Communist Party, and in fact many lawyers have been required to take loyalty oaths “aimed at ‘strengthening lawyers’ ideological and political education.’” Under these circumstances, it is simply unrealistic to expect there will be any meaningful pushback against government pressure from any but the most idealistic lawyers—who are much more likely to be representing dissidents than helping foreigners register trademarks and patents.

And to be honest, questions of loyalty are ultimately irrelevant. As Steve Dickinson has consistently warned in a recent series of posts and webinars about China’s cyber-insecurity regime, “there is no place to hide” once data is transferred to China. All data you send to China is available for easy and routine viewing by the CCP, which is yet another reason why it is so important you limit the information you share with counsel in China.

Bringing in trusted counsel from your jurisdiction will not make all the risks disappear, but it can go a long way toward ensuring your interests are protected.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.