Introduction Part 2–Impact on Chinese Companies

Introduction Part 2–US Litigation War with Chinese Companies

As a follow up to my last blog post, this post will describe in more detail the impact of the trade war on Chinese companies.  As a result of the Solar Cells case, I gave a a speech in June 2012 at the Shanghai Bar Association on the US Trade War with China—Facing the Perfect Storm.  As I began to investigate the situation, I came to the conclusion that like cancer the US Trade War with China has spread into other legal areas and Chinese companies are going to face waves of US litigation 100 feet high as they leave China. 

This wave in litigation will hit Chinese companies as the companies come out of China, but will also hit US companies that are importing products from China and in some cases exporting products to China.

Part of the reason for the substantial increase in litigation against Chinese companies is a strategic problem in China.  Many Chinese companies and their counsel have taken the position that since US judgments are not enforceable in China, Chinese companies simply cannot be touched by US Plaintiffs or the US Government for activities they do in China that affect the US market. 

Another reason, I believe, is the idea of some Chinese lawyers that US lawyers simply do not matter in US litigation cases.  I have often been told, “Bill you simply do not know how it is done in China.  We do the work here in China and you simply file the documents for us in the United States.”  This strategy has resulted in enormous liability and bankruptcies not only for US companies, but now Chinese companies as well.

As the recent Solar Cells case illustrates, Chinese companies have now grown up and have subsidiaries and bank accounts all around the World that can be attacked. 

In addition, US Plaintiffs are trying to attack the assets of foreign companies, including Chinese companies in China, through foreign and Chinese bank branches in New York City.  In effect, Plaintiffs are going to NY Courts and saying since you have jurisdiction over the bank branch you NY Court have jurisdiction over the bank, including the Chinese bank, worldwide so give me your records and assets/bank accounts of this Chinese company in China.  This is a hotly contested area, but indicates that the assets of Chinese companies in China can now be attacked by US Plaintiffs in lawsuits in the United States.  A brave new world.

Moreover, with a little research I have discovered a huge number of cases against Chinese companies, not only for antidumping and countervailing duties and Intellectual Property/Section 337 cases at the US International Trade Commission (“ITC”), but also cases in the False Claims Act/Customs Fraud, Antitrust, Securities and Products Liability areas. 

In the Antidumping and Countervailing Duty area, in addition to the Solar Cells, based on conversations, US importers have racked up an estimated liability of between $500 million and $1 billion in the Wooden Bedroom Furniture antidumping case.  In a Section 337 intellectual property/patent case, a Chinese respondent company and its related importer of inkjet cartridges have been hit by the ITC with the highest fine in history of $11 million.

But that is just the tip of the iceberg.  Under the False Claims Act, US importers and Foreign producers can be hit with triple damages and attorney fees for Customs fraud for transshipment around an antidumping order.  We know one case where the potential damages are $300 million.

In the Antitrust area, cases have brought in the US against Chinese exporters/producers of Vitamin C and Magnesium.  Based on conversations with knowledgeable lawyers in Beijing, we have learned that the legal fees paid by Chinese companies in the Vitamin C antitrust case are close to $200 million.  In May, for the first time a Chinese company reached a private settlement agreement in a US antitrust case, the Vitamin C case, for $10 million.  See attached announcement.  SETTLEMENT ARTICLE  The case goes to trial on November 5th.

Although not against China, its neighbor, Taiwan, has been attacked in a high profile antitrust case on Liquid Crystal Displays (“LCD”), which may be the largest antitrust case in history.  In March 2012, the Justice Department announced a fine against one Taiwan company in the antitrust case for $1 billion for a cartel in violation of US antitrust laws.  See attached announcement.  Justice Department Announcement  The EC has already fined Taiwan companies $1 billion and the civil antitrust litigation in the US in the case is for reportedly more than $50 billion.  The numbers are truly shocking.

In addition, there are dozens of cases being brought by the SEC against Chinese companies for Initial Public Offerings (“IPOs”) done in the US and now there is class action securities litigation against Chinese companies.  We understand from one Beijing law firm that IPOs in the United States for Chinese companies have simply dried up.

Moreover, there are hundreds of product liability cases being filed against Chinese companies.  According to a 2008 Report of the Consumer Product Safety Commission, 85% of recalls overseen by the CPSC in 2008 were of imported products, and China was the country of origin of by far the most products recalled in the U.S. 

Although we have a trade war, US and Chinese companies can be helped out of the problem.  The first objective of this blog is to educate US and Chinese companies as to the impact of the Trade War and how to navigate the trade waters out of these problems. 

Moreover, trade, customs, and litigation lawyers here at Dorsey can help US and Chinese companies with trade and other litigation.

As a result of these developments, I will be sending out more information on US litigation cases against Chinese companies, not only in the trade and 337 area, but in other legal areas as well.  Hopefully, through this blog, when trade and litigation complaints are filed at US agencies and in US Courts, US and Chinese companies will be warned about the case and can take appropriate action.