Choice of Law in IP Contracts with China: A Sleeper Issue?

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Practical Law (Thomson Reuters) has recently made available its analysis of a survey (free sign in required) on the use of governing law for China-related agreements which reveals trends in choice of law for foreign-related IT and IP contracts in China.

In my own experience, if you require enforcement in China, choosing a foreign court (other than arbitration) to resolve a dispute, or a non-Chinese law for a dispute in China, is often a mistake.  The survey data generally agrees: it shows that if local enforcement is going to be an issue for an IP or IT contract, the majority of respondents will choose Chinese law.

The Chinalawblog put the general proposition it this way: “China’s laws do technically allow for contracting parties [in transnational transactions] to make their own decisions regarding a contract’s governing language and law, but in the practical world of Chinese litigation, having an English language contract or a contract calling for foreign law is nearly always going to be a mistake.”

For intellectual property and information technology contracts, choice of PRC law remained significant (31% of respondents).  After Chinese law, New York law (21%) “blazed ahead” of Hong Kong (17%) and English law (10%). ‘Other’ jurisdictions accounted for 19% of responses.   The jurisdiction of enforcement was cited as an important factor by 86% of respondents, and the availability of certain remedies was cited by 80% of respondents

The global nature of information technology and IP transactions may also explain why respondents in this practice area are comparatively open to contracting under unfamiliar laws.   Only 69% of respondents cited familiarity with a body of law as an ‘important’ or ‘very important’ factor in this practice area, against 77% of respondents overall.

Generally speaking, for those lawyers negotiating commercial contracts who choose Chinese law, the key drivers were jurisdiction of enforcement (87%) or of performance (77%) and the location of the contracting entity (71%) or counterparty (63%). Fewer respondents who preferred China rated the neutrality of the legal system as “important” (52%).

I had previously encouraged readers of this blog to complete the survey, as I believe choice of law in IP and technology transfer contracts is a “sleeper” issue – i.e., one that is too infrequently considered for all its strategic implications.  There may be situations where foreign law is preferred for a Chinese contract, or when Chinese law is preferred for a contract to be implemented overseas, or where choice of Chinese law brings some unhappy surprises.  Those, however, are topics for another blog.

Unfortunately the response rate for this survey was relatively low.  In total 127 respondents answered the survey. In addition, the survey did not address choice of law considerations in international technology transfer agreements, where there are mandatory provisions of Chinese law that contracting parties may wish to avoid.

What has been your experience in technology transfer or IP contracts?

One thought on “Choice of Law in IP Contracts with China: A Sleeper Issue?

  1. ipknowledge says:

    Reblogged this on IP.knowledge and commented:
    Mark Cohen’s ChinaIPR blog points to a very interesting Practical Law (Thomson Reuters) analysis of its survey (free sign in required) on the use of governing law for China-related agreements which reveals trends in choice of law for foreign-related IT and IP contracts in China.

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