Morgan, Lewis & Bockius' Beijing Office: Focused On China's New Technology Sector

Monday, May 1, 2006 - 00:00

Editor:Would you tell our readers about your background?

Chang: I am a partner in Morgan Lewis' business and finance practice and the firm's greater China practice, where I serve on the Greater China Practice Steering Committee. My practice focuses on corporate and securities transactions, including venture capital financing, cross-border mergers and acquisitions, and public offerings for industrial and technology companies located in the U.S. and greater China. I am also a licensed U.S. patent attorney, and have worked on a number of significant IP litigation matters. I obtained my J.D. from Santa Clara University School of Law.Before that, I was a research scientist at Union Carbide Corporation and IBM Research. I have a Ph.D. degree in chemical engineering from the University of Washington and a B.S.E. degree from the National Taiwan University.

Editor:Can you tell us something about Peter Zhang's background?

Chang: Peter is Of Counsel in Morgan Lewis' business and finance practice. He is resident in the firm's new Beijing office, and his technology-driven practice includesforeign direct investment into greater China, venture capital and corporate acquisitions.He was general counsel of a major Chinese technology company before joining private practice. He holds a Masters in commercial law from Auckland University in New Zealand and a Bachelor of Law degree from Shanxi University.

Editor: Can you tell us the reasoning behind Morgan Lewis' desire to open an office in Beijing?

Chang: Morgan Lewis has a broad based clientele, and many of its clients are looking at opportunities in East Asia, particularly in China. On the corporate side, clients are looking at foreign direct investment, venture capital investment and private equity opportunities in China. Many of the firm's IP clients have relationships with parties in China as well. The office opened officially in January of this year, with Karen Loewenstein, a physics graduate of Peking University and an IP partner of the firm, as the managing partner.

Editor:Why was Beijing chosen over Shanghai or some other commercial center?

Chang: Office and residential construction and major infrastructure projects - including highways and public transportation - are underway in both Beijing and Shanghai. In fact, the two cities will be connected by high speed train service in a few years. As between the two, Beijing is the country's political center and Shanghai is the economic and financial center. We chose Beijing because, in our view, the talent pool there is of a higher caliber than elsewhere, including Shanghai. Of the top 20 universities in the country, perhaps 10 of them are in Beijing. That matters to us because one of our primary focuses is on the technology-driven legal service sector, including IP and biotechnology. In addition, Chinese regulations currently require that foreign law firm representative offices can be established in only one city at a time. Given our practice strengths, an initial office in Beijing makes more sense than one in Shanghai, even though it is a close call indeed.

Editor:The Chinese bureaucracy is famous for placing obstacles in the way of Western law firms desiring to open offices in China. What hurdles did you have to overcome?

Chang: For starters, the single office requirement I just mentioned. The process can take as long as a year, from the submission of an application and proof of good standing on behalf of the firm and its representatives to final approval by the Ministry of Justice. It is a grueling process.

It is essential for a firm seeking to establish an office in China to have a clear vision of what it wishes to do and the determination to see the process through. Morgan Lewis made a conscious decision to become an international law firm a long time ago. After Europe and then Japan, a Chinese office was a natural step. Having been through similar processes elsewhere, and having a strategic plan in place, the firm was prepared to do what was required to make that office a reality.

Editor:How do you make your presence and availability known to Chinese entrepreneurs or companies that might be in need of your services?

Chang: This is still done by word of mouth principally. We also speak or otherwise participate at conferences quite often. Peter Zhang and I have been involved in a variety of deals in recent years, and we have come to know many of the venture capitalists from these deals. We have also gotten to know many entrepreneurs through our work. Introducing these people to each other, and providing our services in the deals that ensue, is an excellent way of announcing our presence in China. The Stanford and Berkeley alumni networks in Beijing are valuable network resources for us as well. Many of the people we deal with - both entrepreneurs and investors - are graduates of one or the other institution and Silicon Valley veterans.

Editor:What staffing do you have in the Beijing office at the present time?

Chang: At the moment this consists of Karen Loewenstein and Peter Zhang and a couple of legal assistants who are graduates of Chinese law schools and have advanced degrees from UK universities. I spend about half of my time in greater China, which includes Hong Kong and Taiwan, and another IP partner, Bob Gaybrick, spends significant time in China, Korea and Japan. We anticipate bringing several new attorneys at all levels into the Beijing office soon, and we hope to be working closely with our Tokyo office on a number of projects in the near future. The collaboration among the firm's various offices is outstanding.

Editor: IP and transactional law seem to be the primary focus of the Beijing office.Is there a reason for that?

Chang: Technology is the buzzword in China. The Chinese are not satisfied with being the world's manufacturing hub. They wish to build a technology-based economy. As Chinese technology companies emerge as a part of this process, the most important legal practices are IP prosecution and IP litigation defense, in addition to a variety of corporate and transactional practices. Our strategy, accordingly, is to emphasize our IP and business transactional capabilities.

Editor:What IP protection is available to U.S. companies when carrying on activities in China?

Chang: It is no longer true that there is no IP protection in China. There are ways in which a U.S. company can protect its IP if it takes the right steps, including filing patents, maintaining internal controls to safeguard its trade secrets and know-how and treating its employees in a manner that encourages loyalty and trust. An aggrieved employee is one who is likely to leave the company - voluntarily or otherwise - and try to misappropriate company IP in the process.

Editor:Has China's accession to the World Trade Organization made a difference in this area?

Chang: Accession to the WTO has made people in China aware of being part of the world economy and system. I think there is an understanding that, in this situation, the country must live up to its commitments.

Editor:If things don't go right, is arbitration the only vehicle where the issues may be satisfactorily resolved? What are your thoughts about a foreign corporation seeking redress in the Chinese courts?

Chang: This is a complicated, and ever-changing, area.First of all, if a contract is between two PRC (People's Republic of China) parties - one being a Chinese company and the other a wholly foreign-owned subsidiary or enterprise (WFOE) - chances are that the contract has to be governed by Chinese law and resolved at a Chinese venue. That means recourse to either the Chinese court system or to arbitration, principally the China International Economic and Trade Arbitration Commission (CIETAC). We normally recommend arbitration in lieu of litigation unless the contract will be adjudicated in either Beijing, Shanghai or Shenzhen, in which event litigation is probably fine. Outside of these three cities, litigation is not recommended for a variety of reasons. Some of the local judges are less well-trained than others, and, unfortunately, corruption in the system is not unheard of.The damages awarded in a lawsuit can also be frustratingly low. I should also point out that arbitration has problems as well. For example, there are hundreds of cases backlogged in the Beijing CIETAC.

Where the contract is between a U.S. company and a Chinese company, we try to negotiate the law of a foreign jurisdiction - often California or New York - as the governing law. With respect to venue, if we cannot convince the Chinese party to go along with U.S. courts, we will fall back on arbitration in Hong Kong or Singapore.

Editor: Chinese companies are now beginning to develop very sophisticated technology themselves.Obviously, they need protection too.Is this having an impact on the discussion?

Chang: Absolutely. This process took place in Korea and Taiwan. As the Korean and Taiwanese companies began to move up the food chain and develop their own technology, they became increasing interested in IP protection. Not surprisingly, their governments became increasingly concerned with adopting - and enforcing - laws to protect IP owners against infringement. That process is now underway in China. The IP portfolio of the Chinese companies, with the exception of a few major enterprises, is still relatively weak, so the process is in its early stages. The important thing to note, however, is that the process is underway, and the Western companies will be benefited to the same extent as their Chinese counterparts as it evolves and takes hold.

Editor: Recent headlines in the New York Times indicate that Chinese companies are increasingly interested in investing their dollar reserves in U.S. properties.Have you been involved in any of these transactions?

Chang: We are beginning to talk to a few people, but this development is still in its early stages as well. At the moment the Chinese companies are relatively inexperienced compared with their Japanese or even Taiwanese counterparts. For example, in corporate acquisitions, they are often unfamiliar with the typical methodology and process that are so familiar to seasoned corporate players in the U.S. They often try to save money on due diligence. One of the principal things that the Chinese companies have yet to learn is how to make the best use of professionals, whether lawyers, accountants, financial advisers or investment bankers.

Going in the other direction, however, is the tremendous interest that venture capitalists are showing in the Chinese technology sectors. I think the next area of really intense focus is going to be on biotechnology. Of course, the Chinese government is trying to protect its interests in this area. As with the automobile industry, the appearance of a major foreign biotech player in the industry may prompt the government to become involved and avoid losing control over an important sector of the economy. However this evolves, we expect to be very busy in the near future.

Please email the interviewee at lchang@morganlewis.com with questions about this interview.