Morgan Hops Over China's Hurdles

When Morgan, Lewis & Bockius announced that it had landed the right team of lawyers to open an office in Beijing and the permission of Chinese authorities to do it, it was a double coup.

While obtaining a license to practice in China isn't the mystery it used to be for U.S. firms, it's still an arduous process. Firms can wait as long as a year to get an answer from local officials and the Chinese Ministry of Justice, as Morgan, Lewis did. And that's after completing the lengthy application that must be notarized, approved by U.S. agencies and then translated into Mandarin.

Nor is it a secret that landing the right team of U.S.-licensed, Mandarin-speaking attorneys in a crowded market is challenging.

“I know some firms that to aggressively get into China have made attractive offers,” says Greg Pickrell, who heads Pillsbury Winthrop Shaw Pittman's China practice. The firm submitted an application in September to open an office in Shanghai. “It is not out of the question to offer senior associates partnership if they move over.”

Morgan already had several Chinese-educated lawyers in house, and the firm's IP practice had been working to develop its ties with companies in China.

One of its China-educated partners, K. Karen Loewenstein, who has a Ph.D. in physics from Virginia Tech University in addition to a law degree from Georgetown University Law Center, went to Beijing a year ago to handle licensing issues and start building ties with prospective clients.

But the firm also poached two lawyers from Wilson Sonsini Goodrich & Rosati's China practice: partner Lucas Chang and counsel Peter Zhang.

Chang, who will be based in Palo Alto but make frequent trips to China, says Morgan, Lewis' strengths in IP and corporate law were the reasons he chose the firm. Before spending 2 1/2 years at Wilson, Chang was with Heller Ehrman.

Last year, Wilson brought in Carmen Change from Shearman & Sterling to lead its China practice.

Philip Werner, managing partner of practices at Morgan, says both Lucas Chang and Zhang had tech clients in China who have aspirations to go public in the U.S. or seek exit strategies by being acquired by U.S. companies.

“Increasingly it was clear that our technology-based practice in Silicon Valley was increasingly looking to China,” says Werner. “We thought that to be a credible firm in Silicon Valley, we needed to have a bridge to China.”

In choosing Beijing, Werner says, Morgan, Lewis recognized a strong industrial base of Chinese clients. Also Beijing was home to many of the country's regulatory agencies, in the same way that Washington, D.C., is in the U.S.

However, China is not Morgan's first foray into Asia.

Last year, the firm built on its small Tokyo office by forging a joint venture with TMI Associates, a 130-attorney Japanese law firm.

“It wasn't until we had taken steps to solidify our position in Tokyo that we wanted to follow our U.S. clients to [China],” Werner said.

Meanwhile, there is a long queue of U.S. firms willing to brave China's red tape and aggressive lateral market.

Thelen Reid & Priest, Pillsbury Winthrop and Orrick, Herrington & Sutcliffe are just a few of the firms waiting for approval from Chinese authorities to practice in Shanghai or Beijing. (Davis Polk & Wardwell has China aspirations although it isn't clear if the firm has filed for permission.)

Sheppard, Mullin, Richter & Hampton is poised to submit its application for an office in Shanghai in the coming weeks.

Almost 3 years after obtaining permission to practice in Beijing, Heller Ehrman is also submitting paperwork to open a second office in Shanghai.

Currently, firms must wait three years after opening their first office in China before opening a second branch in a different city. Other rules state that U.S. firms can't merge with Chinese firms in mainland China and U.S. firms can hire Chinese lawyers as consultants, but not as practicing lawyers.

Still, lawyers point out that in China the situation is constantly evolving. And some firms do find shortcuts.

For instance, Paul, Hastings, Janofsky & Walker entered the China market by partnering in 2002 with Hong Kong firm Koo & Partners, which had a Beijing office. A year later, Paul, Hastings opened an office in Shanghai.

Meanwhile, Orrick announced in August that it was acquiring a portion of the Beijing and Shanghai offices of Coudert Brothers, a foreign firm with a long history in China. Seven months later, Orrick still hasn't obtained the necessary permission from Chinese authorities.

Orrick officials won't comment on whether they are seeking new licenses or a transfer of Coudert's old license. Selling or transferring licenses isn't permitted under Chinese law, although special provisions can be made for mergers.

Last year, employees of Coudert's Beijing office alleged in a legal opinion prepared for them that Orrick was illegally attempting to transfer to itself Coudert's license to practice in China.

Meanwhile, the three partners and about 25 associates in these two offices are still working for Coudert.