While their quality is improving rapidly – China only implemented its first IP law in 1982, after all – it is legal innovation, cross-hiring and market liberalisation that look most likely to shape the market for top legal services over the next few years.
Chinese firms become leaders
Foreign firms have traditionally dominated international work in China. For quality, they still have the edge: "The gap between domestic and foreign firms in China is not as big as it used to be, but foreign firms still definitely have the advantage," says Frank Liu of Chang Tsi & Partners.
But there is a shift taking place. Foreign companies are increasingly willing to use local firms, at least for filing work. "Competition among all types of IP firms has become extensive," says Tim Meng, managing partner of GoldenGate Lawyers. "The profit margin for trade mark work has turned out to be minimal and local firms can undercut foreign peers. Often foreign trade mark owners, to save costs, are engaging local lawyers to work on their IP issues, and looking for secondary or strategic opinions from foreign firms."
This year's research discovered that domestic firms are filing in much larger volumes, and delivering better quality for their foreign clients. In fact, these firms are increasingly becoming the brains behind landmark cases and as a result pushing the evolution of IP in China.
For instance, last year Wan Hui Da successfully fought to have 3D bottle designs recognised for the very first time, on behalf of its client Chivas. Another example is LawJay Partners, which represented Microsoft in a case where the principle of landlord liability was applied to copyright infringement for the first time. The Supreme People's Court also selected a case involving King & Wood Mallesons as one of the top IP cases of 2012. The firm represented Qihoo 360 in a case against Tencent relating to the use of internet privacy software.
An increase in domestic firms hiring foreign lawyers has helped. "I'd say in five years, we'll see a dramatic change," says Joe Simone of Simone Intellectual Property Services. As domestic firms catch up, foreign firms will also have to work to maintain their competitive edge.
"Foreign firms will have to think deeply about how they recruit and retain their talent. That means training and offering realistic prospects for advancement: a lot of these guys think they can go to a Chinese firm and become partner. Foreign firms need to think about creating that emphasis for value," Simone adds.
Where they need to learn
These innovative domestic firms are still the exceptions, however. "Local practitioners are learning fast, but in my experience there are still many areas for improvement. Perhaps it is just a growing pain for Chinese firms, but quality can vary greatly," says one in-house counsel.
To become more competitive, domestic firms will need to adapt in several ways. Even though Chinese firms are catching up fast in experience, practitioners agree that foreign firms retain the competitive edge in relation to their culture, language and management. It is a criticism often cited by clients.
"The problem with Chinese firms is that they don't understand how to explain certain particularities of Chinese law to foreigners," says another in-house source. This management point and the need for coordination with other jurisdictions is one of the main reasons multinationals still tend to use foreign firms.
"This is an area to watch. People still haven't found the ideal Chinese firm that can both handle registration and litigation," says Simone.
On the other hand, many foreign firms are newcomers to China and can find it difficult to negotiate the local market. There are long-standing players, such as Bird & Bird and Baker & McKenzie, but many others are seen as trying to get a slice of the Chinese growth without giving it the appropriate time or investment.
The managing partner of Robin Bridge & John Liu, Anthony Tong, opened its first Beijing office six months ago and has been living the challenges. "Managing staff in Hong Kong and China are two totally different things. The mind set, values and perspectives are completely different," he says.
Both foreign and local firms are guilty of undercutting prices in order to try and increase their market share. 'We may not be cheap, but we deliver quality,' is a phrase that was heard frequently during interviews with Managing IP this year, as the top firms sought to distinguish themselves.
Opening up the legal market
One reason clients are increasingly seeking the assistance of domestic firms is the legislative restrictions placed on international firms. One in-house counsel explains that with the current situation, there is the risk its legal strategy can be lost when hiring an international firm who in turns hires a local counsel for representation before the courts. It also costs more.
"From a budget standpoint, if I'm hiring an international firm that has to hire a local counsel, there is some duplicity and added cost," says the in-house counsel.
Chinese protectionism has been the traditional reason for these restrictions, but that attitude is likely to change. "The trend is quite clear towards opening the legal market. Foreign law firms cannot practice PRC law, for instance, and this qualification needs to be changed in the future," says Liu.
Sources indicate that there are discussions of reforms at the government level but there are no legislative drafts yet. Nonetheless, practitioners are confident that joint ventures and foreign lawyers becoming eligible to take the PRC bar exam are on the horizon.
Tong predicts liberalisation of the legal market will occur first with Hong Kong firms before US or European firms. "The question first is how to prevent back-door entry into China if this is opened to Hong Kong firms," he says.
Liberalising the legal market has the potential to both broaden the offering of foreign firms and allow the best local firms to compete globally. Liu Shen & Associates, for example, was only founded in 1995 by two partners but has now grown to over 200 IP lawyers and attorneys, and is a serious competitor for any foreign practice. And the merger that created King & Wood Mallesons in March 2012 may indicate another direction. Described as a hybrid firm with an international presence but domestic practice, King & Wood Mallesons may prove to be the paradigm, allowing the Chinese firm to develop in its own way but implementing the structure and management expected of a foreign firm.
These trends, together with the sheer speed of China's development, means that its legal market is likely to have an impact on the rest of Asia. It may well become a model for how domestic firms can grow and innovate without being overshadowed by international rivals.
The speed of IP development in China |
1957 Until this date, state-owned enterprise CCPIT Patent and Trademark Law Office was the only trade mark agency. 1982 First Trademark Law adopted. 1984 First Patent Law Adopted. 1985 Five state-owned agencies established to handle foreign-related IP issues: CCPIT Patent and Trademark Law Office, China Patent Agent (HK), SPA, NTD Patent & Trademark Agency and China Trademark Agency. 1990 First Copyright Law adopted. 1992 Second revision to Patent Law. 1993 Second revision to Trademark Law. The first privately owned agency established in Beijing, Liu Shen & Associates. 1998 State Intellectual Property Office established. 1999 State Administration for Industry & Commerce (SAIC) amends its trade mark agency regulations to allow for private trade mark agencies. The regulation also introduces professional examination in order to become a trade mark agent. 2000 Third revision to Patent Law. 2001 Third revision to Trademark Law. 2002 Second revision to Copyright Law. 147 IP agencies recorded. Government announces that all patent and trade mark agencies are to cut ties with governmental organisations and become private practices. 2003 SAIC scraps the professional examination for trade mark agents. 2008 4,700 IP agencies recorded. 2012-2013 Fourth revisions to Trademark and Patent Law under review. Third revision to Copyright Law currently under review. |
