The case note below is adapted from an article published on July 30, 2025, by Chen Yanzhong (陈延忠), Chief Judge of the Foreign-Related Trial Division of the Xiamen Maritime Court.

For the original Chinese article, see https://mp.weixin.qq.com/s/uzinqmm0OUuM8du_lWKZRw.

East IP Introduction

The case note provides insights into a civil decision in the Chinese city of Wuxi issued in October 2024 ordering the enforcement of a California judgement for US$73 million against a defendant (a US national of Chinese descent) found responsible for civil fraud.

The Wuxi court’s decision comes in the wake of the amendment in 2023 of the Civil Procedure Law of China which contained more explicit provisions on the recognition of foreign civil awards based upon the principle of reciprocity. Since this amendment, several other Chinese courts have enforced US judgements on this basis, but none of the magnitude of the Wuxi case.

So far, there have been no reported decisions from Chinese courts enforcing US judgements in cases involving IP infringement. But the Wuxi decision has prompted many in the IP community to ask whether to explore new actions in the US where the infringer’s assets are located in China. Among the questions being raised are the following:

• Are Chinese courts now required to respect US judgements? 
  
  As explained in the following article, the Wuxi court’s decision was approved beforehand by the Supreme People’s Court and Jiangsu Higher People’s Court. As such, there is reason for optimism.

• Will Chinese courts refuse to enforce a US judgement which involves an infringement of US intellectual property rights?
  
  This remains to be seen. In principle, there are no systematic barriers for Chinese courts in enforcing US judgements involving IP violations. In this regard, it is noteworthy that, in 2019 a local court in China enforced a judgement of a Korean court involving an infringement of trademarks.  But future courts may well be influenced by a range of overt and unstated factors, including the influence of bilateral relations at the time enforcement is requested. And the risks of non-enforcement will probably be much higher where challenges have been raised to the integrity of the plaintiff’s IP registrations.

• Will Chinese courts refuse to enforce a US award which is based upon a summary judgement decision, and where the Chinese defendant did not participate in the proceedings, thus presenting a defense?
  
  Again, this remains to be seen. But relevant rules and policies in China do not seem to exclude the possibility.

• What are the best practices for ensuring that Chinese courts will not reject enforcement proceedings based upon defective service of defendants under relevant provisions of the Hague Convention?
  
  It is indeed critical to ensure proper service is made under the Hague Convention. As each case will differ, advice will need to be sought before proceeding with service, with an eye not only to the requirements of US law but also Chinese law.

Uncertainties abound with respect to enforcement of US judgements against infringers in China. But East IP is encouraging IP owners to test the waters with three considerations in mind: 

• Test cases will be the only way to clarify the willingness of Chinese courts to offer such protection and understand the limits thereof.

• In principle, the chances of actually receiving compensation following successful enforcement proceedings should be quite good, as Chinese defendants should be subject to “social credit” penalties if they fail to pay court awards.

• Finally, the level of deterrence generated by such proceedings is likely to be quite substantial, particularly in cases where the foreign IP owner lacks corresponding registrations for its rights in the PRC, or where the IP owners otherwise lack the evidence required to bring proceedings in China based upon its PRC rights.

In the meantime, readers will find the following article by Judge Chen useful for understanding how Chinese courts are likely to evaluate future cases, thereby also helping to select and prepare complaints.

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Case Note

Background

Plaintiffs:             

Wuxi Luo Company (“Luo Company”), Huang (individual);

Defendants:

Li (individual, American national), TA Co., Ltd. (formerly known as “Standard Company”, hereinafter “TA Company”).

This case stems from a commercial dispute between the plaintiffs Luo Company and Huang, and the defendants Li and TA Company:

• Huang had provided capital for the establishment of Standard Company (i.e., TA Company) in California, and Li was responsible for the actual operation of Standard Company.

• Standard Company’s operations were very successful and profitable, but Li deceived Huang by falsely claiming that the company’s profits were insufficient to pay Huang’s dividends, and as such, Li suggested that the profits be kept in the company for US tax purposes.

• During this period, Li and Li’s spouse earned tens of millions of dollars in the form of salaries and dividends from Standard Company.

• Several years later, Li decided to sell the company privately and retain all of the profits from the sale. To this end, Li forged documents, recorded Huang’s capital investment as a loan in the company’s accounts, and falsely claimed that Huang’s shareholder status was only a loan relationship. Li claimed to the purchaser that Li was the sole shareholder of the company and sold all of the company’s assets for more than US$44 million.

• It was not until 2010 that Huang learned from a third party that Standard Company had been sold without his knowledge or consent.

The San Mateo County Superior Court of California issued a judgement on July 12, 2016 (Case No. 502381, hereafter referred to as the “US Judgement”) ordering the defendants to compensate Luo Company US$876,315, and Huang US$72,560,730, with the total amount of damages awarded being US$73,437,045.

After the judgement was made, the defendants appealed to the California Court of Appeal, which upheld the original judgement on June 25, 2019. Thereafter, the defendants applied to the California Supreme Court for retrial, which was rejected on September 11, 2019. As such, the San Mateo County Superior Court’s decision became final and effective.

Because Li failed to compensate the plaintiffs and had enforceable assets in China, the plaintiffs filed an action with the Wuxi Intermediate People’s Court on December 10, 2020, requesting recognition and enforcement of the above-mentioned US judgement.

Wuxi Court’s Judgement and Reasoning

After trial, and with the approval of the Supreme People’s Court and the Jiangsu Higher People’s Court, the International Commercial Division of the Wuxi Intermediate People’s Court issued Civil Decision No. 1-II on October 28, 2024, recognizing and enforcing the US Judgement.

I. Reciprocity between China and the US

The International Commercial Division of the Wuxi Intermediate People’s Court held that under Article 299 of the Civil Procedure Law of the PRC, in the absence of international treaties, the recognition and enforcement of foreign court judgements may be based on the principle of reciprocity.

In the present case, the plaintiffs had submitted precedent cases demonstrating that US courts (including California courts) have, in the past, recognized and enforced PRC judgements and vice versa, thus establishing reciprocity between China and the US.

Li tried to argue that in the US precedent submitted by the plaintiffs, the US court’s recognition of the PRC judgement was based on the Uniform Foreign-Country Money Judgements Recognition Act, which does not explicitly address the issue of reciprocity. As such, the precedent does not demonstrate a stable, long-term reciprocity relationship between China and the US.

The Wuxi court held for the purposes of establishing reciprocity, the fact that the other jurisdiction had previously recognized and enforced a PRC judgement is sufficient, and there is no need to examine the domestic laws relied upon by the foreign court to reach its decision.

II. US Judgement violated Principles of Chinese Law

Li argued that the damages awarded in the US Judgement were excessively high, and the US Judgement did not recognize concept of “nominal shareholders” that is widely recognized under PRC judicial practice, thus violating the principle of fairness under China’s civil law.

The Wuxi court, however, determined that Li had only put forward this argument because the result in the US Judgement was unfavorable to him, and there was no actual violation of the principle of fairness. With regards to the issue of “nominal shareholders”, the Wuxi court held that US courts have the right to exercise their judicial sovereignty, and just because foreign law differs from Chinese law, this does not give PRC courts the right to override the decision of the foreign court. It is expected that different legal systems may lead to different judgements and results. If the Wuxi court were to determine that the US Judgement violated the principle of fairness in this case, then this would be a “blind expansion of China’s judicial sovereignty”, which would not be conducive to Sino-foreign judicial exchange and cooperation.

III. Public Interest

Li argued that the plaintiffs’ investment in Standard Company may have violated PRC regulations regarding foreign investment, cross-border data transfer in the context of accounting management systems, etc., which may have harmed China’s public interests.

The Wuxi court, however, clarified that “public interest” refers to high level interests regarding China’s political foundation, public order, moral norms and social customs, etc. comparable to national sovereignty and security. The interests mentioned by Li do not fall within the definition of “public interest”. Li also did not provide any valid evidence demonstrating that the plaintiffs violated the above-mentioned PRC regulations during the civil action in the US. The plaintiffs’ so-called illegal acts have not been confirmed by any judicial examination and do not constitute a reason to refuse recognition of the US Judgement.

IV. Basic Principle of Opportunity to Defend and Right to Jury Trial

Li argued that, due to being allegedly restricted from leaving China, personal attendance at the trials in the United States was not possible, which resulted in a deprivation of the right to defend in court. Li further claimed a deprivation of the right to have the case heard before a jury.

The Wuxi court held that although Li was not physically present at the US trials, representation by counsel ensured that the opportunity to defend in court was not denied. In addition, contrary to Li’s assertion, the US Judgement records that the failure for Li to appear in court was due to “health reasons,” rather than restrictions on leaving China.

With respect to the right to a jury trial, the US Judgement clearly indicates that Li made the “strategic decision” not to request one, rendering the claim unfounded.

V. Judgement Based on Perjury?

Li claimed that Huang had committed perjury by making a false statement before the US courts.

The Wuxi court confirmed that perjury / fraud is a valid reason to refuse enforcement of a foreign judgement. However, in the present case, Li’s allegation of Huang’s perjury is not supported by any evidence, and is merely the bare, unilateral assertion of Li. It is not for the PRC courts to retry any foreign case on substantive issues that have already been determined by the foreign courts. If Li had genuinely believed Huang’s statement to be false, then Li had ample opportunity to raise this issue at any point during the first trial, the second trial, and the retrial proceedings in the US.

Take-Aways

1. Flexible and pragmatic approach to establishing reciprocity

The key take-away from the above-mentioned case is that reciprocity can be established so long as there is a judicial precedent in the other country for recognizing and enforcing a PRC judgement.

In the past, for countries with no treaty relations with China (such as the US), it was unclear whether a “long-term judicial practice” of recognizing and enforcing each other’s judgements was required to establish reciprocity. The Wuxi court’s pragmatic approach, which was explicitly vetted by the Supreme People’s Court, should lower the threshold for recognizing reciprocity and enhance predictability going forward.

2. The scope of application of public interest and basic principles is limited

“Public interest” has been narrowly defined to refer to fundamental interests affecting the national sovereignty and security of China, thus preventing it from being misused by judgement debtors such as Li as an excuse to evade enforcement.

Similarly, just because foreign legal principles are different from those of China does not mean that foreign legal systems violate the basic principles under Chinese law. This reflects the respect and tolerance of China’s judiciary for different legal systems.

3. Focus on formal review

In reviewing a foreign judgement for recognition and enforcement in China, PRC courts will focus on formal review, and substantive issues of the case will not be retried. This not only respects the judicial sovereignty of foreign courts but also improves judicial efficiency.