Minden company's lawsuit against China highlights immunity to U.S. suits

When an American scooter maker lost patience with cheaper Chinese-made models flooding the United States market, it got some attention by filing an antitrust lawsuit.

Patmont Motor Werks Inc. accused the Chinese government and companies there of making it impossible for the Minden-based company to sell its products to Chinese. One aim of the lawsuit was to open China's doors to American-made products.

That improbable goal is now in ashes, when Patmont's lawyers couldn't even track down the companies they were suing to serve them court papers.

An increasing number of companies and individuals are likely to face similar frustration. The flood of Chinese imports has triggered a growing number of lawsuits, but individuals and companies often find it impossible to win damages or other legal redress, especially for lawsuits filed overseas. Foreign companies are also filing lawsuits in Chinese courts, and occasionally winning, against local companies caught violating trademarks, copyrights and patents.

Within a decade, China is likely to conform more closely to international legal standards, said Gary Hufbauer, a China expert at the Peterson Institute for International Economics, a Washington think tank.

"The drift is clearly toward a normalized situation," he said.

Current obstacles arise because the targets of lawsuits are often companies that are partly owned by the Chinese government or army, or are allied with provincial governors, said Hufbauer.

As a result, their clout can outweigh efforts by the trade ministry to adhere to international agreements, he said.

In addition, he said the Chinese government sometimes obstructs litigation to retaliate when it believes the U.S. or the European Union is "poking it with a stick."

Washington's growing impatience over Chinese trade practices has prompted dozens of retaliatory bills in Congress, as the U.S. trade deficit with China for 2007 is expected to exceed a record $250 billion. The U.S. lawmakers view 2008 - when China hosts the Olympics - as an opportunity to highlight their grievances.

Suit dismissed

A federal judge dismissed the Patmont lawsuit 2 1/2 years after it was filed because Patmont had been unable to deliver the lawsuit to the defendants, as court rules require.

The failure was not for lack of trying, said a Patmont lawyer, Brian R. Irvine.

"Once you serve them at one address, you get a letter back saying they are not there," Irvine said.

Company founder Steven J. Patmont said the lawsuit convinced some American companies to stop selling the Chinese-made knockoffs, but that China has failed to adhere to trade agreements and his company has barely survived a tenfold drop in sales since 2000.

"They were allowed to come into our country," Patmont said. "But they did not lower their trade (barriers)." As a result, Patmont's Go-Ped motor scooters face a 167 percent markup in China he said, due to a 150 percent tariff and a 17 percent value-added tax.

Most Chinese companies have no assets in the United States, so they have no trouble ignoring a U.S. court order.

"There is no treaty between the United States and China that requires the enforcement of each other's judgments," said Lyle, a former Clinton White House official.

China is a signatory to an international accord known as the Hague Convention, but does not accept all of the treaty's articles.

Chinese companies are not the only tough lawsuits; judgments are difficult to enforce in Russia, Lyle said. In contrast, the judgments of U.S. courts face smoother sailing in Canada and the United Kingdom, he said.

Lawyer Jeffrey B. Killino, of Woloshin & Killino in Philadelphia, said there are times when the expense and effort of suing a Chinese company make it more logical to focus on U.S. companies doing business with them. That was his strategy in August, when he sued California-based Mattel Inc., claiming the world's largest toy maker should pay for testing to determine if children have been exposed to lead from millions of recalled toys. The case is pending.

"Naming a Chinese defendant in that case could slow the case, and we have so much to recover from Mattel" and others, he said.

Indeed, every step in litigation can be an ordeal when the defendant is a Chinese company, said Peter A. Antonucci, a lawyer at Greenberg Traurig in New York who has consulted for Chinese companies.

Expensive process

Just serving the lawsuit on the defendant - the step that tripped up scooter maker Patmont - must be done according to the Hague Convention. The documents must be translated and then sent to China, where the proper government authority must notify the company, he said.

Lawyers said that Chinese authorities often cannot locate the accused companies because the firms are often dissolved and the factory put in the hands of a new company.

"It's very expensive, very expensive and very time-consuming. The fastest I've ever seen it done is three months," Antonucci said. In the United States, service occurs within a few days.

Another routine matter, taking depositions, poses a problem because it is illegal to take depositions in China, he said. Since defendants have little incentive to come to the United States voluntarily, such sessions take place at the U.S. embassy, since that is considered American soil, he said.