When faced with a known threat, the skillful commander does not ignore the gathering danger. Plans carefully laid at the beginning of a conflict can do more to shape the eventual outcome than efforts taken after the threat has materialized.
Chinese mainland companies lacking an actual presence in the United States are routinely the subject of lawsuits, filed both in state and federal courts. A large percentage of those companies, and particularly ones that have not previously been involved in litigation in the US, adopt a wait-and-see approach.
This strategy consists of taking no immediate action and relying both on the difficulties in effecting service on a Chinese mainland company and the belief that the plaintiff will not expend the time and effort to pursue the dispute further than exchanging demand letters. While this philosophical approach will save expense in the short term, and over time may result in cases that simply disappear without significant effort, ignoring the company's opportunity to directly address the US litigation carries significant risks.
Under the rules applicable to the Chinese mainland under the Hague Convention on Service Abroad of Judicial and Extra-Judicial Documents in Civil and Commercial Matters, the service of process of a lawsuit cannot be accomplished by mail but instead can be effected through the Bureau of International Judicial Assistance in the Ministry of Justice.
In comparison, many courts in the US have concluded that service by registered mail is effective in terms of companies located in Taiwan. However, once service is complete a company located either in Taiwan or on the Chinese mainland typically has only 20 days to file a responsive pleading with the US court or risk having a default entered. If a default is entered, the US court then has the authority to immediately award the plaintiff the relief requested in the complaint and the defaulted party does not have any right to participate or object.
In one recent case, the defendant company decided that it could ignore the service of the complaint on the belief that the manner of service was not effective under Taiwanese law, and the judgment out of a California court would not be enforceable in Taiwan. However, the California court determined that service was effective under California law and entered the default of the company. After a short hearing, in which the company could not participate due to the default, the California court concluded that the company had misappropriated the plaintiff's trade secrets used in an integrated circuit central to the operation of personal computers. Having ignored the value of engaging early, the Taiwan defendant is now subject to a permanent injunction that prohibits the sale of any integrated circuits using this technology.
Taking proactive steps to file a responsive plea does not mean that the Chinese mainland company has agreed to have the merits of the dispute resolved in a court in the US. Even where service of the compliant is effective under the Hague Convention, there are a number of strategies that can be employed to challenge the authority of the US court to hear the matter, or to request the transfer of the case from the US to the Chinese mainland.
To be subject to suit in the US the plaintiff must establish that the court has personal jurisdiction over the defendant. This inquiry considers whether there are sufficient minimum contacts between the forum and the defendant to conclude that there is a sufficient relationship between a foreign defendant and the US to establish jurisdiction. While a defendant may decide to simply ignore responding to the lawsuit and seek instead to challenge jurisdiction once the plaintiff acts to enforce the resulting judgment, this strategy is not recommended as losing the jurisdictional challenge will leave the defendant without any other defenses to enforcement of the judgment. In contrast, without agreeing to be subjected to the jurisdiction of the court, a defendant may challenge jurisdiction through a motion to dismiss. If the challenge is successful, the case will be dismissed. Alternatively, should the US court decide that it has jurisdiction over the matter the defendant will have retained the right to defend against the claims on the merits.
More strategies
A Chinese mainland company subject to jurisdiction in a court in the US has additional strategies to employ, including seeking to transfer the case from the US to the Chinese mainland, as long as it acts promptly to implement those strategies. For example, a defendant can ask the court to transfer the case to a court on the Chinese mainland based on the premise that the transferee court would provide a more convenient forum. These transfers are a two-step process that first considers whether the courts on the Chinese mainland would be a suitable forum for the dispute and, second, whether the matter should be transferred when balancing a number of private and public interests.
A court on the Chinese mainland may be considered a suitable alternative forum if that court has jurisdiction over the parties and the action would not be barred by the statute of limitations applicable under the law of the Chinese mainland. That the law on the Chinese mainland may be less favorable to the plaintiff, or that the recovery would be difficult if not impossible, is irrelevant to the determination unless the US court decides that the alternative forum provides no remedy at all. This last concern applies only in rare circumstances, such as where the US court concludes that there is no independent judiciary or due process of law in the alternative forum. However, in recognition of the Chinese mainland's increasingly sophisticated, well-functioning legal system, the mainland has gained significant acceptance as a suitable alternative forum from a number of courts in the US.
Finally, the US court will balance the private interests of the parties against the public interest in retaining the action in the US. The private interests considered include the ease of access to sources of proof, the cost of compelling witnesses to attend and any issues that bear on making the trial more or less expeditious. The public interests involve the burden on the local courts and weighing the competing interests of the Chinese mainland and the United States in the subject matter of the underlying dispute. While none of these factors alone are determinative, addressing these matters proactively at the commencement of a suit in the US increases the chances that the interests of the Chinese mainland company can be best protected.
Chris Scott Graham is managing partner of Dechert LLP, Silicon Valley. The views expressed in this article are his own.
Editor's note: The IPR Special is sponsored by the State Intellectual Property Offi ce and published by China Business Weekly. To contact the Intellectual Property Offi ce, the IPR Special hotlines are 8610-64995422 or 8610-64995826, and the e-mail address is ipr@chinadaily.com.cn.
（Source：China Daily ）
2009-6-7 |