Amount in Controversy and Jurisdiction Redefined by the SPC (Republish)

On March 31, 2008, the Supreme People promulgated a new set of judicial rules, redefining first-instance jurisdiction of higher and intermediate people’s courts in civil matters across the country.

In these extremely detailed rules, the SPC lays out the required amount in controversy in order for higher or intermediate people’s courts to exercise first-instance jurisdiction over civil cases. What is really amazing is that the rules do not generalize; rather, they detail the exact minimum amount required for each province, autonomous region, and municipality.

For example:

A. Beijing

Beijing Higher People Court as first instance court:

The amount in controversy must exceed 2,000,000,000.00 200,000,000.00 Yuan, or

the amount in controversy must exceed 1,000,000,000.00 100,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

Beijing intermediate courts (including Railway Intermediate) as first instance courts:

The amount in controversy must exceed 50,000,000.00 Yuan, or

the amount in controversy must exceed 50,000,000.00 20,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

B. Shanghai

Same as Beijing

C. Guangdong Province

Higher People’s Court as first instance court:

The amount in controversy must exceed 3,000,000,000.00 300,000,000.00 Yuan;

the amount in controversy must exceed 2,000,000,000.00 200,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries);

Cases with substantial impact on the entire province; or

Any cases that the Court deems it should exercise first-instance jurisdiction.

Intermediate courts:

1. Guangzhou, Shenzhen, Foshan, and Dongguan Intermediate courts:

The amount in controversy should be between 3,000,000,000.00300,000,000.00 and 50,000,000.00 Yuan; or

The amount in controversy should be between 2,000,000,000.00200,000,000.00 and 40,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

2. Zhuhai, Zhongshan, Jiangmen, and Huizhou intermediate courts:

The amount in controversy should be between 3,000,000,000.00300,000,000.00 and 30,000,000.00 Yuan; or

The amount in controversy should be between 2,000,000,000.00200,000,000.00 and 20,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

3. All of the rest intermediate courts in Guangdong:

The amount in controversy should be between 3,000,000,000.00300,000,000.00 and 20,000,000.00 Yuan; or

The amount in controversy should be between 2,000,000,000.00200,000,000.00 and 10,000,000.00 Yuan and one of the parties in dispute must be domiciled outside this jurisdiction (outside Beijing, parties from Hong Kong, Macau, or other countries).

As indicated above, these rules cover all the higher and intermediate courts inChina with like details on amount in controversy. And the amounts vary significantly from province to province, city to city, district to district in some instances. Parties in dispute should refer to these rules to find the court of competent jurisdiction.

Personally, I am very surprised to see rules that detailed on jurisdiction inChina since many rules are intentionally vague for civil law jurisdictions. As a result of these rules, there would be, presumably, less uncertainty with respect to finding the right court to sue in China. But, I am wondering what prompted the promulgation of these rules. I also wonder what these rules would have on forum shopping in China. Does anyone out there know?

Go here for the entirety of the rules in Chinese.

Summary Judgment/Procedure in China (Republish)

Having been working on summary judgment motions at work for three consecutive weeks, I kept thinking whetherChina has something similar to summary judgment in its civil trials. With limited knowledge on Chinese procedural laws, I disclaim that what I write here is really subject to future corrections from readers.

In the United States, summary judgments are available in federal and state courts. The purpose of summary judgments is to “eliminate patently unmeritorious claims and untenable defenses, not to deny a party its right to a full hearing on the merits of any real issue of fact.”Ramirez v. The Pecan Deluxe Candy Co., 839 S.W.2d 101, 105 (Tex. App.-Dallas 1992, writ denied). As to federal rules, the Federal Rules of Civil Procedure, Rule 56, governs. In the State of Texas, parties can file a conventional motion for summary judgment under Tex. R. Civ. P. 166a or a no-evidence motion for summary judgment under Tex. R. Civ. P. 166a(i).

In a traditional summary judgment motion, in order to prevail, the movant must present enough evidence to show that there are no issues of material fact, and that no reasonable jury would find for the non-movant. The key is that the movant must present evidence showing that the other party could not possibly win. On the other hand, in a no-evidence motion for summary judgment under 166 a(i), the movant does not need to submit summary judgment evidence; instead it only needs to raise specifically the issues for which the non-movant lacks supporting evidence, and argue that no reasonable jury would find for the non-movant.

In response to a traditional motion for summary judgment, the non-movant does not have the burden of proof. It only needs to present evidence contradicting the movant’s evidence, showing that issues of material fact exist.

Responding to a no-evidence motion for summary judgment, the non-movant, however, has the burden of proof; as such, it must present summary judgment evidence on each issue raised by the movant. If the non-movant in its response, presents more than a scintilla of evidence on the elements challenged by the movant, the court should deny the movant’s motion and the nonmovant is entitled to a trial on merits.

Summary judgment practice is a routine in many courts.As far as I know, it is very much alive in DallasCounty. Due to shifting political winds, the landscape of summary judgment changes with election results. Pro-plaintiff judges will probably not grant a summary judgment for anything; however, pro-defendant judges will do it more frequently. So, summary judgment is both technical and politically volatile (in Texas, at least).

After consulting a Chinese lawyer, here is what I got from an e-mail response on summary judgment, or the lack there of in China:

The concept in Chinese legal system most similar to summary judgment in the common law system is called “Summary Procedure” in Chinese civil procedural law. I attach the bilingual law for your information, as well as the excerpt below:

Chapter 13 Summary Procedure

Article 142 When adjudicating simple civil cases in which facts are clear, the relations of rights and obligations are definite, and disputes are minor, the basic people’s courts or their dispatched tribunals may apply the summary procedure stipulated in this Chapter.

Article 143 For simple civil cases, their plaintiffs may file their complaints orally.
Both parties may appear at the same time in a basic people’s court or its dispatched tribunal for a solution of their dispute. The basic people’s court or its dispatched tribunal may adjudicate the case immediately or set a date for the trial.

Article 144 When adjudicating a simple civil case, the basic people’s court or its dispatched tribunal may, at any time, use simplified methods to summon the parties and witnesses.

Article 145 A simple civil case shall be tried by one judge alone and the trial of such cases shall not be restricted by the provisions of Articles 123, 125, and 128 of this Law.

Article 146 The people’s court shall complete the adjudication of a case to which the summary procedure is applied within three months after the case is accepted.

Without real trial experience in China, I can only say that “summary Procedure” practice seems very different from summary judgment in the United States. Summary judgment, as a pre-trial practice, is a pretty evolved creature, with features like voluminous motions, persuasive affidavits, piles of records sometimes, and a hearing in a court room. I wonder how a summary procedure is played out in China.

The Supreme People's Court's 2-18-08 Judicial Explanation on Trademarks, Enterprise Names, and Other Prior Existing Rights

(The following is my attempt at translating the SPC's latest Judicial Explanation regarding the issues/conflicts between registered trademarks, enterprise names and other prior existing rights. If I have mis-interpreted any part of the Judicial Explanation, please kindly point out in your comments. Thanks! In addition, I will write a following post on the impact of this Judicial Interpretation.)


People's Republic of China The Supreme People's Court Notice
Law Explanation (Fashi)(2008)(3) Provisions on Several Issues in Hearing Cases Regarding the Conflict between Prior Existing Civil Rights and Registered Trademarks & Enterprise Names adopted on February 18, 2008 by the Supreme People's Court Judicial Committee meeting No. 1444. It is hereby announced that it will go into effect on March 1, 2008.

February 20, 2008中华人民共和国
最高人民法院公告
法释〔2008〕3号

《最高人民法院关于审理注册商标、企业名称与在先权利冲突的民事纠纷案件若干问题的规定》已于2008年2月18日由最高人民法院审判委员会第1444次会议通过。现予公布，自2008年3月1日起施行。

二○○八年二月十八日

To correctly resolve civil disputes involving the conflict between registered trademarks & business names and prior existing civil rights, these provisions are hereby instituted in accordance with the PRC Civil Procedure Law, General Principles of Civil Law, the PRC Trademark Law and the PRC Anti-Unfair Competition Law, as well as trial practices.

为正确审理注册商标、企业名称与在先权利冲突的民事纠纷案件，根据《中华人民共和国民事诉讼法》、《中华人民共和国民法通则》、《中华人民共和国商标法》和《中华人民共和国反不正当竞争法》等法律的规定,结合审判实践，制定本规定。

Article One Provided that requirements under Article 108 of the PRC Civil Procedure Law are met, People’s Court should accept cases filed by plaintiffs on the basis that defendants’ use of letters, graphics in defendants’ registered mark violated Plaintiffs’ existing copyright, patent right in packaging design, rights in business names, etc.

Where Plaintiff brings a lawsuit on the ground that another’s registered mark used in approved categories goods/services are similar or identical to her mark, People’s court should refer plaintiff to relevant administrative bodies for resolution, in accordance with Article 111 (3). However, where plaintiff bring a lawsuit on the grounds that another’s use of its registered mark is beyond the categories of goods/services registered for, or where another uses a registered mark by transforming its distinctive features, disassembling it or re-configuring it, the people’s court shall accept such cases.


第一条 原告以他人注册商标使用的文字、图形等侵犯其著作权、外观设计专利权、企业名称权等在先权利为由提起诉讼，符合民事诉讼法第一百零八条规定的，人民法院应当受理。

　　原告以他人使用在核定商品上的注册商标与其在先的注册商标相同或者近似为由提起诉讼的，人民法院应当根据民事诉讼法第一百一十一条第（三）项的规定，告知原告向有关行政主管机关申请解决。但原告以他人超出核定商品的范围或者以改变显著特征、拆分、组合等方式使用的注册商标，与其注册商标相同或者近似为由提起诉讼的，人民法院应当受理。

Article Two Where Plaintiff brings lawsuits, pursuant to PRC Anti Unfair Competition Law Article 5 (3), on the ground that another’s use of a business name is same or similar to her prior existing business name, which use is sufficient to cause consumer confusion as to the source of the goods/service, the people’s courts should accept such cases.

原告以他人企业名称与其在先的企业名称相同或者近似，足以使相关公众对其商品的来源产生混淆，违反反不正当竞争法第五条第（三）项的规定为由提起诉讼，符合民事诉讼法第一百零八条规定的，人民法院应当受理。

Article Three The people's court shall, in accordance with the plaintiff's claim and the nature of controversial legal relationship under civil law, and in accordance with the Civil Causes of Action (Provisional), ascertain the cause of the conflict in civil disputes between registered trademarks or enterprises and prior existing civil rights, and apply appropriate law accordingly.


第三条 人民法院应当根据原告的诉讼请求和争议民事法律关系的性质，按照《民事案件案由规定（试行）》，确定注册商标或者企业名称与在先权利冲突的民事纠纷案件的案由，并适用相应的法律。

Article Four Where the use enterprise name complained of infringe on the exclusive right of registered marks, or constitute unfair competition, the people's court, in accordance with the plaintiff's petition and specific circumstances of the case, may assign civil liabilities, such as enjoining defendant from using such name, correcting such use, etc.

第四条 被诉企业名称侵犯注册商标专用权或者构成不正当竞争的，人民法院可以根据原告的诉讼请求和案件具体情况，确定被告承担停止使用、规范使用等民事责任。



　　

A Delicious Case of Moon Cakes for Hong Kong

For many westerners, moon cakes, a traditional Chinese dessert consumed during the Mid-Autumn Festival, are much like fruitcakes (if you get my drift).

For the Chinese, moon cakes, however, are an integral part of the wonderful traditions surrounding the Mid-Autumn Festival.

And for a Hong Kong moon cake maker, Wing Wah Moon Cake Co. (“WWMC” Co.), a recent victorious lawsuit in the Dong Guan Intermediate Court brought an extra measure of sweetness.

WWMC Co. has had many problematic encounters with infringers in the mainland over its trademark. It began selling its delicious moon cakes in the mainland in 1987, and established a factory in Dong Guan, Guangdong Province subsequently. Infringing moon cakes bearing WWMC Co.’s trademarks soon followed its presence in China. Unfortunately, WWMC Co. did not register its signature moon cake trademark, which significantly limited its options in term of protecting its trademark rights.

After waiting for more than a decade (and probably swallowing the dire consequences of not registering its trademark prior to entering China), WWMC Co. finally slammed its infringers with a lawsuit in Dong Guan, claiming trademark infringement and unfair competition. Notwithstanding the unregistered status of its trademark, WWMC Co. wisely predicated its request for trademark protection on the provisions regarding famous trademarks provided in the Chinese Trademark Law. Defendants in the case included many large retail supermarkets and small companies.

The Court agreed with WWMC Co. It found confusion between the infringing moon cakes and those of the plaintiff because the packaging and appearance of the alleged infringing cakes were the same as or similar to the plaintiff’s. Given the similarities, consumers, as the Court reasoned, could be easily confused as to the source of the moon cakes. (I would have liked a copy of the opinion to see how exactly the court reached this conclusion since most moon cakes do look pretty much the same to me. I guess the Court mostly focused on the packaging.)

With respect to trademark protection, the Court stated that registration of a trademark is not a necessary condition to protection in China under the Trademark Law. A trademark could gain the “famous trademark” status in a given market if its owner has conducted continuous, extended advertising and marketing, and if its owner has established brand recognition among consumers in a given market. Since WWMC Co. has met the above requirements, the Court held that its trademark is legally “famous”, thus deserving protection in spite of the fact that it is not registered.

Of course another important factor is that the infringement occurred in the same category of products—moon cakes. Had the usage of the trademark in question been in a totally unrelated industry, the result would be very different. Got to remember that protection for unregistered famous trademark is only limited to instances where illegal use occurred in the same or similar products/goods.

This case is significant for a few reasons. First, many trademark owners have an alternative way to protect their intellectual property rights if somehow their trademark is not registered in China, and I do see an increasing number of cases where plaintiffs take the “famous trademark” route for relief. In fact, that is what inspired WWMC Co. to sue in this case.

Second, the strategic choice of venue in Dong Guan Intermediate Court was a shrewd move. WWMC Co. has a factory in Dong Guan, and presumptively this factory generates good tax revenue for the city, and making this venue a friendly place, even though WWMC Co. is an outsider. Of course, the Court seemed competent in arriving at the right decision.

Third, I kept wondering whether a Hong Kong plaintiff has a distinctive advantage over its western counterparts in “famous trademark” cases. In Southern China, especially in Guangdong, certain famous marks in Hong Kong will probably gain consumer recognition easily due to the affinity in culture and language. However, western famous trademarks might not because of the huge cultural and language barriers. To overcome the barrier, western companies will have a higher bar to meet in terms of the requisite advertising, establishing consumer recognition with their brands. Therefore, I think that Hong Kong trademark owners have an edge over their western counterparts in famous mark lawsuits. (as a side note, this is purely based on my instinct and limited understanding of doing business in Southern China.)

So, your comments are welcome.

China's New Property Law--Common Ownership Dispute Surfaces

Another interesting case involving the new property law is pending in the Beijing Intermediate People’s Court for er sheng (court of second instance).

Briefly, plaintiff Ms. Ji sued her three sons to regain ownership of real property gifted to them. The property in question had been transferred by plaintiff and her late husband, but following his death, plaintiff wanted to retract the gift because her sons did not properly fulfill their filial obligations to her. The trial court held the defendants did not substantially violate the rights of the transferors, thus the gifted property stays with defendants. Plaintiff appeals the judgment, citing the new Property Law’s treatment on common ownership.

Common ownership, in the Property Law, is divided into two forms: ownership by shares and undivided common ownership. For a concise yet accurate rendition of the law, I quote in full China Law Blog’s post:

Division 8: Common Ownership

There are two forms of common ownership: ownership by shares and undivided common ownership. Absent a specific agreement, common ownership is assumed to be ownership by shares except in the case of a family relationship, where the opposite assumption is made.

1. The basic attributes of ownership by shares is:

Each common owner has a percentage ownership in the undivided property. The amount of each share is based on the amount contributed by the party to purchase the property. If this amount cannot be determined and there is no express agreement, the common owners will all have equal shares.

The common owners share in income and expenses in proportion to their share interest. However, with respect to third parties, common owners have joint liability.

Each common owner has the right to sell his share in the property, subject to the right of first refusal of the other common owners to purchase that share.
Each common owner has the right to petition for partition of the commonly owned property.
******
2. The basic attributes of undivided common ownership is:

Each common owner has an undivided ownership interest in the entire property.

Each common owner has a right to the income of the property and also the obligation for the expenses of the property. The common owners have joint liability with respect to third parties.

No common owner has a right to sell any portion of the property absent the consent of all of the other common owners.

As a general rule, a common owner does not have the right to petition for partition of the property. However, partition is
permissible if a) there is a compelling reason or b) the underlying relationship is terminated. A compelling reason is not defined in the statute, but the commentaries suggest a major medical expense would be such a reason.

Termination of the relationship most commonly would be divorce.
As with ownership by shares, the default rules for undivided common ownership can be modified by agreement.
******

In the present case, a presumption of undivided ownership applies to the property at bar because of ownership by a wife and her deceased husband. If plaintiff’s assertion of undivided ownership prevails, the plaintiff has the right to alienate the property with the consent of her co-owner, who is now dead. So the sticky issue is whether she has the sole authority to withdraw the gift.

Of course, the plaintiff can argue in the alternative that she owns the property by shares, presumably equal shares, thus she has the right to alienate her half of the property. But she has the burden to overcome the presumption of undivided ownership.

A fascinating case, and I will track its progress in the Court.

China’s New Property Law Put to Test

Many have either mused about or questioned the true color of China’s new Property Law. Will it provide adequate protection to private owners of real property? Will it be seriously enforced to safeguard the burgeoning private ownership of property? Will it be sophisticated enough to cover myriad legal problems that surface in a growing market economy (assuming that all agree that China has a market economy already)? Will Chinese courts be knowledgeable enough to interpret the law to protect property owners? Will the courts withstand the ultimate test of judicial independence to adjudicate property disputes between private citizens and the government? Or, will the Property Law be just another “decoy” masterminded by the Chinese government to legitimize its continuous rein of the People’s Republic? These are tough questions, and the answers to which will unfold a telling map of China’s progress to establish a systematic institution of the rule of law.

Systematic changes do not occur overnight in China. As the Chinese firmly believe that “Rome was not built in one day”, they will likely continue with the experiment with establishing their version of the rule of law at their own pace. Therefore, answers to the above-posted questions will not come in one neat package. I think the Chinese government will afford extra caution to the Property Law given the political sensitivity of currently competing views on property ownership (government ownership versus private ownership).

Nonetheless, the great test on the new Property Law has begun. No sooner did the week-long national holiday end than a slew of case got filed under the new law. Two representative cases are particularly interesting and will be discuss here.

In the case of Shen v. Beijing Zhongjiaxin Auction Ltd., the central issue is whether the Property Law is applicable to disputes predating the effective date of the new law. Briefly, the facts of the cases are as follows in the form of an outline:

1998
Plaintiff Mr. Shen purchased 6 condos for 120,000 Yuan from Mr. Yan.

06/10/1999
Plaintiff received titles to the 6 units. Plaintiff leased the units to various tenants.

2002
The Shijiazhuang Intermediate People’s Court convicted Mr. Yan for illegal business activities and bribery.

The Court also ruled that the 6 condos then in Mr. Shen’s possession were Mr. Yan’s property, and it subjected them to judicial auction. Beijing Zhongxiaxin Auction Ltd. was the court-appointed auctioneer.

09/2007
Defendant Auction company evicted the lessees of Mr. Shen’s units, and auctioned the condos.

09/2007
Plaintiff sued the defendant at the Chang Ping People’s Court (Chang Ping is a district in Beijing), claiming the defendant violated article 4 and 64 of the Property Law (governmental, collective and private ownership of property is protected by law).

The general rule is that a law is applicable to disputes following its effective date. But the plaintiff is petitioning the Court to apply the new law regardless of the general rule. What do you think the Court should do here?

--to be continued.

Danone Group to Make Things Personal

According to a report, on July 19, 2007, four subsidiary companies of Danone, NOVALC Pte. Ltd., Festine Pte. Ltd., Jinja Investments Pte. Ltd. and Myen Pte. Ltd., initiated legal proceedings to file a derivative action against Zong Qingou, the former board chairman of the Danone-Wahaha joint venture. He resigned in June 2007 amid the intensifying disputes with Danone.

Essentially, this new lawsuit will be directly against Zong for his “illegal” activities while serving on the board of directors of the joint venture. The four shareholders of the joint venture will more than likely allege that Zong breached his fiduciary duty as a board member by engaging in competitive activities that injured the interests of the shareholders.

In addition, Danone also asserted claims directly against Zong in its Stockholm arbitration. [But I haven’t heard anything from that case lately.]

Levi’s Looking Pretty in Chinese Court Despite Painful Lesson

As Dan Harris stated repeatedly in his China Law Blog (“CLB”), Chinese trademark law is “simple and effective” when enforced. Clothing giant Levi Strauss & Co.’s (“Levi’s Co.) recent victory in a Shanghai court would further bolster Dan’s averment, but its triumph came with a unique twist. So let’s just call the victory “bitter sweet.”

Levi’s Co. is known for its jeans in America and beyond. (My first pair of jeans in the U.S was a pair of blue Levi’s, which still go well with my boots.) In 1974, Levi’s Co. registered its LEVI’S trademark with the Chinese Trademark Office and has kept the registration effective by renewing and adding more categories of clothing related to the trademark since then.

Levi’s Co. entered into a distribution relationship with Shanghai Beizi Clothing Company, Ltd. (“Beizi Clothing”) some time before 2005. (I have not been able to verify the exact starting date.) And Beizi Clothing was to be a non-exclusive distributor of Levi’s products, probably in Shanghai (for lack of information, this fact might be a little off.).

In June 2006, a branch office of the Shanghai Administration of Industry & Commerce (“SHAIC”) caught Beizi red-handed in selling counterfeit Levi’s jeans. After investigation, the SHAIC issued an administrative order, penalizing it for selling counterfeit products. Soon after, Levi’s Co. woke up from this nightmare and sued for trademark infringement in the Shanghai 1st Intermediate People’s Court. Levi’s Co. asked for an injunction, civil damages in the amount of 500,000 yuan, and a public apology in the Morning News (a local newspaper).

The Court hammered Beizi Clothing, taking the SHAIC’s administrative order as a prima facie case for trademark infringement. With some feeble attempts to challenge the “famousness” of Levi’s brand, Beizi Clothing was ordered to cease all infringement activities, pay 100,000 yuan, and issued a public apology.

Sounds like a slam dunk for Levi’s Co.? Right! Easy case. But doesn’t this whole thing bother anyone? By now, you might be thinking what I am thinking now—“What the hell was Levi’s Co. thinking in picking this unscrupulous distributor?”

Besides that thought, a few other Chinese idioms keep echoing in my head: “引狼入室” and “同床异梦”.

Let me explain. The first idiom literally means leading a wolf into your bedroom, and if you do that you might have to face the consequences of a devious company (pun intended.) The second one gets even better, which means sleeping in the same bed but with different dreams. It applies to relationships where parties only superficially cooperate, while they actually possess different visions about their relationship.

Ok, I know that Levi Strauss & Co. is incorporated in Delaware and headquartered in San Francisco, and that it is unfair for me to expect it to know traditional Chinese wisdom. But, could Levi’s Co. have done a better job of choosing a local Chinese partner? I think so and I run the risk of Monday morning quarterbacking (hindsight wisdom). However, for the sake of good corporate governance, any foreign company selecting partners in China should bear in mind choosing your partner carefully. Find yourself a friend, not a foe. To do that, you got to abide by Ten Commandments for doing business in China as compiled by ChinaSolved.

Wahaha's China arbitration request granted despite pendency of Swedish and U.S. lawsuits

Brad Luo's articles have illustrated the escalation of the trademark dispute between China's beverage giant, Wahaha, and the French company, Danone. The dispute centers around the ownership of trademarks used by 39 joint ventures which have evolved contractually between the companies since 1996. Danone claims that Wahaha has been using the trademark to unfairly compete with Danone and the joint ventures; Wahaha claims that the trademark transfer contracts, under which the joint ventures operate, was never approved by China's trademark authority and are void.

Choice of venue issues are complex in multi-national lawsuits and there is no great statutory relief in certain venues which will protect parties from multi-venue fights. This has proven to be a problem for foreign companies contracting with Chinese entities, in particular. An example is the case of China National Metal Products Import/Export Company vs. Apex Digital, 379 F.3d 796 (9th Circuit 2004). Apex Digital (Apex) is a California corporation that imports consumer electronic goods from China which it sells under its own brand name to retailers in the United States. In 2000, Apex entered into a series of contracts to purchase DVD Players from China National Metal Products Import/Export Company (Metal). Each of the contracts contained the following identical arbitration clause:

All disputes from or in connection with this Contract shall be submitted to the China International Economic and Trade Arbitration Commission ("CIETAC") for arbitration which shall be conducted by the Commission in Beijing or by its Shenzhen Sub-Commission in Shenzhen or by its Shanghai Sub-commission in Shanghai at the Claimant's option in accordance with the Commission's arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.

In March 2001, Apex filed a Statement of Claims concerning nine (9) of the purchase orders at the Shanghai sub-commission and the case was accepted. A week later, Metal decided that Beijing would be a better venue and filed a Statement of Claims concerning eight (8) of the purchase orders with CIETAC in Beijing.

Not surprisingly, Apex objected and requested consolidation of all claims into the already commenced Shanghai arbitration. CIETAC rejected Apex's objection and held that CIETAC could entertain both arbitrations at the same time, in different forums because the arbitrations were not "entirely the same." The difference? The Shanghai arbitration involved one additional contract.

The Beijing arbitration panel, unsurprisingly, ruled in favor of Metal as it had predicted. Metal sought enforcement in the United States. The United States District Court held, and the Ninth District affirmed, that the United States had to defer to CIETAC's internal rules to determine the validity of arbitral awards and had to enforce the Beijing decision.

Given the fact that the Wahaha/Danone dispute has been filed in three global forums, it raises serious questions: What do the joint venture contracts say about dispute resolution, venue selection, consolidation of disputes (if anything)? What happens if the Chinese tribunal rules in favor of Wahaha (that the IP transfer wasn't approved by the China Trademark Office) - will it void the contract in full or just negate the trademark transfer issues?

The Apex case exemplifies the impact of the dispute resolution clauses on the relationship and mechanisms to resolve disagreements. The agreement should always specify one institution for dispute resolution and, moreover, the issue of case consolidation should be taken into consideration when drafting contracts between multi-national parties. In Apex, CIETAC was asked to consolidate cases but refused to do so. Such refusal to consolidate cases is not improper in China. Thus, the only protection in these type of disputes is either to include a clause in the initial contract which expressly agrees to the consolidation of any cases concerning the transaction or the parties; or the warring entities can find a way to agree to consolidate the cases after a dispute arises.


In the Wahaha/Danone case, it is unlikely that Wahaha is going to agree to consolidate the cases in any venue other than Hangzhou. Hangzhou is the capital of China's eastern Zhejiang province and is home turf for Wahaha and Zong Qinghou. As the former chairman and founder of Wahaha (in the late 1980's), Zong has been the target of the allegations made by Danone and the primary catalyst for the escalated battle between the companies in the past 2 months.

Wahaha v. Danone: Who Will Have the Last Laugh?

The Wahaha and Danone dispute appears to have been kicked into high gear.

Following Danone’s lawsuit in California state court against a subsidiary company of Wahaha, the former board director of the Danon-Wahaha Joint Venture, Zong Qinghou, announced on June 13, 2007 in a press conference that he would submit the dispute between Wahaha and Danone to arbitration in China. Specifically, the dispute involves a trademark transfer agreement Wahaha and Danone. The venue of arbitration is the Hangzhou Arbitration Commission.

In order to follow the development of dispute, which has gone global literally, it is better grasp the chronology of the relationship between Wahaha and Danone.

First, the occasion warrants a brief intro of the players. Danone is currently one of the world’s leading global corporations in fresh dairy products and bottled water, and its production and sales spans around the world. Wahaha is a bit more complicated. Wahaha Group consists of three large blocks of corporate entities. The first is the original Wahaha Group Ltd., and the City of Hangzhou owns 46% of the stock, and the rest of stocks of the company are unevenly distributed among Mr. Zong, the management, and employees (before 2000, Wahaha Group was a solely state-owned enterprise). The second one is the Wahaha-Danone Joint Equity Venture Group. Wahaha Group Ltd. Controls 49% of the shares, and Danone holds 51%. The third bunch is a host of non-joint venture companies established and operated in essence by Wahaha Group Ltd. and Hangzhou Wahaha Food Products Ltd.

Second, the following is the chronology of the relationship between Danone and Wahaha.

1. 02/29/1996-----Joint Venture Agreement between Wahaha Group Ltd. and Danone, including trademark transfer agreement, non-compete agreement, and confidentiality agreement

2. 03/28/1996-----Wahaha Group Ltd., Danone, and a Hong Kong enterprise agreed to form five joint ventures in China.

3. 04/1996-----Mr. Zong became the chairman of board of directors of the said five joint ventures.

4. From 1996—2007, the original five joint ventures evolved into 39 joint ventures, and everybody made a ton of money.

5. Problems began to surface in 2000 after the reorganization of Wahaha Group Ltd., which became a private entity with the Hangzhou government holding 46% of its stocks. The reorganized Wahaha Group Ltd. began to establish its own joint ventures and separate subsidiary entities, which totaled 17 entities in a span of six years. Apparently, Wahaha Group Ltd. used the Wahaha-related trademark in violation of the Wahaha-Danone Joint Venture Agreement.

6. Danone kept quiet with respect to Wahaha Group’s use of the trademark and apparent breach of the non-compete agreement inherent in the Joint Venture Agreement.

7. In late 2006, Danone initiated an offer to buy all of Wahaha Group Ltd.’s companies which are developed outside of the Joint Venture Agreement, and Wahaha Group Ltd. rejected the offer. The dispute went public in early 2007, escalating into a full blown fight over the ownership and usage of the Wahaha trademark.

8. 05/09/2007, Danone Asia submitted the disputes with Wahaha Group Ltd. with respect to the Joint Venture Agreement to the Stockholm Arbitration Institute.

9. 06/04/2007, Danone sued, in the Superior Court of Los Angeles County, Ever Maple Trading, a company based in the British Virgin Islands, and Hangzhou Hongsheng Beverage, as well as two individuals related to these companies. The two companies are believed to have ties with Wahaha Group Ltd. and Mr. Zong.

10. 06/05/2007, Mr. Zong tendered his resignation as the chairman of the board of directors of the Wahaha-Daone Joint Venture.

11. 06/13/2007, Mr. Zong announced his plan to submit the trademark dispute arising out of the Joint Venture Agreement to the Hangzhou Arbitration Commission.

As can be seen, the facts of this dispute are complicated and convoluted, and both parties are engaging in interesting tactics to gain procedural advantages. I am trying to get my hands on the Joint Venture Agreement to see exactly what they agreed to in 1996. Tomorrow, I will blog about the thrust of both parties’ contentions in their respective arbitration, trial proceedings.

Choice of Law and Contracts in China

Disputes happen. It certainly happens to foreign companies doing business in China. The multinational company Danone is in a huge one now.

I think it is safe to say that conflicts and disputes are unavoidable in doing business in a foreign country, but one can control the risks involved and minimize the damages thereunder. Choice of law in contracts with foreign parties can be of strategic importance if and when disputes arise in commercial activities.

Article 126 of the Contract Law of China governs foreign-related contracts. It provides that “parties to a foreign related contract may choose the applicable law for the resolution of their disputes, unless the law provides otherwise.” As it is clear from the contract code itself, the contracting parties' express provision on choice of law will be enforceable in case of a dispute later. Whether to choose Chinese law, the law of your own residing jurisdiction, or a neutral third jurisdiction is a difficult decision. The best thing to do is to get competent counsel who understands, comprehensively, the laws and regulations of all the three possible jurisdictions. Only upon a careful examination of all the applicable laws of the various possibilities can one make an educated choice.

The Contract Law of China also contemplates that if the parties fail to expressly state in the contract the choice of law, the disputes between the parties shall be governed by law of the country with the closest connection (nexus) to the contract. Simple it might seem, but the two words “closest connection” have generated voluminous commentaries among contract law and international law scholars. Some suggest that the connection is one that should be assessed in terms of both the quantity and quality of the connections, while other suggest that the presiding judge over the case should have wide discretion to determine by weighing the interest of the parties involved. Still others argue that the contracting parties’ intent warrants some consideration in determining what law governs. My two cents worth on this is that if the scholars cannot figure it out over years of research, the contracting parties REALLY need to expressly provide the choice of law clause for their own good.

Not all contracts in China can be governed by laws selected by the parties. According to the Contract Law, the following three types of contracts shall be governed by the law of P. R. China:

Chinese-foreign joint equity venture contracts to be performed in China
Chinese-foreign cooperative joint venture contracts to be performed in China
Chinese-foreign contracts for joint exploration and development of natural resources in China

If you really do not want a piece of the Chinese law over your contract, consider structuring your business deals around the contract law by avoiding forming a joint venture in China. But a deal, as I understand, is often more complicated than that.

For more on Chinese Contract Law, check out my earlier posts.

Freedom of Contract in China: Not So Fast Yet

Freedom of Contract in China: Not So Fast Yet (II)

Freedom of Contract in China: Not So Fast Yet (III)

Freedom of Contract in China (IV): The Role of the People's Court