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Do you need an international firm in China?



Peter Leung


International law firms have long positioned themselves in China as the purveyors of high-end legal work that can help foreign rights holders navigate the complex legal environment there. However, as the IP legal market matures, international law firms see themselves in increasing competition with not just each other, but domestic players as well

International firms have positioned themselves as a unique and premium service; not only are they capable of handling complex and often multi-jurisdictional matters, they act as a bridge and interpreter of the Chinese legal system. Though foreign law firms may not practice in Chinese courts, many international clients value them in this role, to work with domestic law firms and form as the interface to the local counsel.

There are various reasons for this upmarket approach, but simple economics is a big one; while a junior associate at a top American law firm starts at $160,000 a year, it is not atypical for a Chinese associate to start at Rmb120,000 ($20,000) a year. Though the gap varies in the higher ranks, the end result is that Chinese law firms generally charge less than their international counterparts.

Maturing market, more competition

Several lawyers at international firms told Managing IP that there is concern among management about justifying these higher rates to clients. This stems largely from the belief that domestic Chinese firms are improving and doing strong work.

"The competition is among all the firms, not just between international firms and local firms, particularly in this IP area," said one lawyer from a US law firm in China. "About 15 years ago, international firms mostly handled all the IP work for all the internationals, while local firms mostly worked for local clients, with some exceptions such as CCPIT and China Patent Agent. This is less the case now."

Furthermore, as China’s IP system mature and becomes more predictable, in-house counsel begin to question whether a pricier international lawyer is needed to act as a bridge to local Chinese counsel.

Chinese law firms are doing their part to bridge the perceived cultural gap. According to a lawyer at an international firm: "In the last five to 10 years you have a lot of younger Chinese-trained lawyers who have work experience in a US or European law firm, or have been to law school abroad, and they are bringing these skills and experiences back to China. Those are often the ones to look out for with the soft skills along with the expertise to work in China as well as with international clients."

Paul Ranjard at Chinese firm Wan Hui Da says that it is the clients that are changing and looking to cut out the middle man.

"I tend to believe that in terms of IP prosecution and IP protection, it is not true to say that local Chinese firms have 'become quite good’, in the sense that they are 'almost as good’ as foreign firms," he explains. "It would be more accurate to say that progressively, foreign clients have realised that using a big international firm for IP matters was not justified, and that they would be better off going directly to the source of the information and action."

Even better?

In fact, some may argue that Chinese law firms have advantages beyond price. The ability to practise Chinese law as Ranjard alludes to may well appeal to clients who want a more direct connection to their lawyers.

However, some argue that the most important work can and is still being performed by the international firms.

"Litigation in China does not spend as much time in the discovery process as the US, nor are the hearings as important," explained one lawyer with both US and Chinese legal qualifications. "The evidence gathering is done before you file any cases in China, and the strategy before the hearing is the most important part. Because of this, I don’t think there is a huge difference between local and international firms, even if the foreign firm cannot appear in court."

There has also been considerable debate about the importance of guanxi, the relationships and connections that some say are central to Chinese business. While China may have a reputation as a place where everything is governed by guanxi and backroom deals, some such as Dan Harris of the China Law Blog warn that the importance of these relationships may be overstated often at the expense of business fundamentals.

The same discussion takes place in the IP legal market, where several Chinese firms, such as CCPIT and China Patent Agent, are noted by peers for their relationships in government. However, Ted Chwu of Bird & Bird says that while connections may help in procedural matters such as getting information more quickly about a case, it is unclear from his experience that a firm’s connections had much effect on a case’s outcome. Like Harris, he says that the legal fundamentals are more important.

"If anything, the lesson is that the Chinese legal system is much more professional than people seem to think," he says. "In places the IP law in China may not be as developed as, say, in the US or UK, but it’s definitely not the Wild West."

Staying the course for now

Though international firms may be paying more attention to domestic competitors, they appear to be sticking with the game plan and touting their traditional strengths. One lawyer at an American firm says that international lawyers are still generally better at providing the level of service and responsiveness that international clients expect and have a better understanding of the challenges they face. Meanwhile, Chwu argues that in areas where Chinese law is relatively undeveloped, such as in FRAND issues, having lawyers with experience in those areas in other jurisdictions can be invaluable.

What do you think? Should future MIP rankings not distinguish between domestic and international firms?

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