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Legal Reform in China: Latest developments and implications for Foreign Traders

Date: 05 December 2012
Author: Joanne Martin
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With an increase of foreign companies operating in China, the release of the Judicial Reform in China White Paper issued on 9 October 2012 is of particular interest.  Rapid economic growth and social development has led to changes to the Chinese judicial system to overcome the existing problems, and to meet new demands, and the paper reports on the most recent reforms.

The following statistics from the White Paper show just how vigorous the Chinese legal sector is:

  • There are currently 18,200 law firms in China, up 31.6% from 2000
  • There are 210,000 lawyers registered in China
  • In 2011, Chinese lawyers acted as advisors for 392,000 clients, up 24.6% from 2008
  • Chinese lawyers handled 2.315 million litigation cases in 2011, up 17.7% from 2008.

What is hidden in the above statistics, but is increasingly known to our IP clients, is that there is increased involvement of non-Chinese traders, who are manufacturing and/or selling branded product in China, in trade mark disputes with Chinese trade mark owners or trade mark pirates.  This makes the following reforms very significant:

1. Chinese courts use of case management systems

Many of the Chinese courts have instituted online case management systems that allow the parties to monitor and more efficiently conduct litigation, for a more streamlined and cost effect process.  The result is that the litigation in China often proceeds much faster than is common elsewhere in the world, with short time lines for providing evidence, and without the need for much evidence to prove facts or satisfy formalities.  Therefore, it is necessary for foreign companies to recognise the need to get their "best evidence" together quickly and respond to legal demands and deadlines promptly.

2. Standardisation of costs and awards

The Chinese government has issued a costs guideline for lawyer fees, with the aim of eliminating the risk of bribery and to introduce fairness.  This provides a level of certainty for litigation costs.

3. Case guidance system

Until recently, the Chinese legal system was not significantly supported by common law precedents and decided judgments.  This meant that decisions were often unpredictable.  However, the Chinese judicial bodies have been issuing comprehensive guiding cases and references for the legal system, such that decisions in typical cases, including intellectual property cases, are handled consistently.  The Supreme Peoples' Court regularly issues binding guidelines on the interpretation of important statutes such that, there should be increased clarity around the likely outcome of intellectual property decisions by the various Chinese courts.

4. Improvements in execution of judgments

In the past enforcing judgments, including monetary awards, could prove elusive.  A department has now been set up within the court system to focus exclusively on enforcement. The resulting improvements will benefit foreign traders in protecting their business interests. It may also increase the legal actions brought against foreign traders as Chinese citizens are adept at using the legal system for monetary advantage, and there is a known practice of a sector of the Chinese community to pirate brands and sue when necessary as this is accepted as a legitimate means for financial gain.

It is useful to be aware of these basic reforms, to act promptly if a dispute arises, to recognise that Chinese people are making  use of the court system to resolve disputes, and know that "being in the right" or being a trade mark owner will not ensure a favourable decision.   Strategic approach to conflict resolution is still important, and our team of Chinese associates will be able to assist in finding good solutions.

 
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