Metropolitan News-Enterprise


Monday, March 31, 2008


Page 1


C.A. Declines Firm’s Request to Block Rival’s Suit in China


By SHERRI M. OKAMOTO, Staff Writer


A semiconductor firm seeking to enjoin a competitor from suing it in the People’s Republic of China failed to show that it would not get a fair trial in that country, the First District Court of Appeal has ruled.

Div. Three Thursday affirmed an Alameda Superior Court judge’s denial of an injunction that would have barred Semiconductor Manufacturing International (Shanghai) Corporation and Semiconductor Manufacturing International (Beijing) Corporation from suing Taiwan Semiconductor Manufacturing Company, Ltd. in Chinese courts.

The appellate panel, relying on considerations of international comity and judicial restraint, said Judge Bonnie Sabraw did not abuse her discretion by denying the injunction. Substantial evidence, the court said, supports the trial judge’s conclusion that the litigants’ due process rights would be protected by the Chinese courts.

Previous Litigation

The Taiwan firm, also known as TSMC, sued the two SMIC entities on multiple occasions in 2003 and 2004. The parties settled their differences in two separate settlement agreements, which both provided that  “the substantive laws of California shall apply to any dispute arising out of this Agreement,” and that the parties agreed to submit to “personal jurisdiction and venue of the California Courts with regard to any dispute arising out of the interpretation, enforcement or breach of this Agreement.”

In 2006, TSMC filed suit in the Alameda Superior Court against the SMIC companies for breaching the terms of their agreements.  The SMIC companies filed a cross-complaint for breach of contract and breach of the implied covenant of good faith and fair dealing. 

The SMIC companies later filed a civil complaint in the Beijing People’s High Court, which asserted the same basic claims as their domestic cross-complaint. TSMC then filed a motion for antisuit injunction, asking that the SMIC companies be ordered to abort the Chinese litigation.

No ‘Exceptional Circumstances’

Sabraw concluded that TSMC had not met its burden of showing exceptional circumstances to justify an antisuit injunction. She found that the agreements’ choice of law provisions were mandatory, but rejected TSMC’s argument that the choice of California law required that the SMIC claims be litigated in California.

Sabraw wrote:

“The ‘tipping point’ in the analysis is this Court’s confidence that the Beijing Municipal Court will give effect to the [two agreements], evaluate whether the claim in the [Chinese] action arose out of or relate to those contracts and, if so, either apply California law to the claims asserted or stay the claims and direct SMIC to pursue those claims in this California Court.”

Presiding Justice William R. McGuiness, writing for the Court of Appeal, said the trial judge did not err.

Because an antisuit injunction indicates that “‘the issuing court has so little confidence in the foreign court’s ability to adjudicate a given dispute fairly and efficiently that it is unwilling even to allow the possibility,’” McGuiness wrote, wrote quoting Gau Shan Co., Ltd. v. Bankers Trust Co. (6th Cir. 1992) 956 F.2d 1349, an antisuit injunction should rarely be issued.

TSMC argued that an antisuit injunction is appropriate whenever a foreign action may curtail a party’s constitutional rights, but the presiding justice noted that TSMC’s argument was “curiously lacking in support from case law” to support TSMC’s “novel argument” that a court must “ignore its guideposts of comity and judicial restraint every time a litigant complains that a foreign proceeding threatens to infringe upon a constitutional right.” 

McGuiness continued:

“Even if we were inclined to accept [TSMC’s] theoretical ‘exception,’ we would not find it satisfied here because the Beijing court has not taken, and has not been asked to take, any action that is forbidden by our state or federal constitutions.”

TSMC characterized the Chinese proceedings as a form of “judicial censorship,” to secure an unconstitutional restraint on TSMC’s speech and petitioning activities.

But the “mere existence of the [foreign] action in no way restrains TSMC’s rights to free speech or petition,” McGuiness wrote. “The Beijing court has not issued a ruling that actually infringes on TSMC’s constitutionally-protected rights to speech or petition, and we will not speculate that such ruling is forthcoming based merely on appellants’ criticism of the Chinese legal system.”

The court further noted that the SMIC companies challenged TSMC’s allegedly false and misleading statements, and should the Beijing court conclude that TSMC had in fact made false and misleading statements and enjoin TSMC from continuing to do so, “such a ruling would not, even under California standards, violate TSMC’s rights to free speech.”

TSMC also claimed that Taiwan’s export control laws would prohibit it from sending certain semiconductor technology to mainland China, and that these export laws would prevent it from offering vital evidence in its defense. However, McGuiness reasoned, “any prediction about the effect Taiwanese export control laws may have on TSMC’s due process rights in China would be purely speculative and not, in our view, a sufficient basis to support issuance of an antisuit injunction.” 

Based upon evidence that foreign corporations have won the majority of intellectual property cases in Beijing since China joined the World Trade Organization and that China’s Constitution and civil procedure laws provide for judicial independence, respect for the rule of law, equal treatment to litigants of all nationalities, the collection and presentation of evidence, direct and cross-examination of witnesses, and a right of appeal, the court found substantial evidence to support its conclusion that the Chinese court would provide a fair judicial process for TSMC.

“Based on the record before us,” McGuiness concluded, “it would be ‘pure[] speculati[on]’ to assume the Beijing Municipal Court is unable or unwilling to deciding the parties’ dispute fairly and efficiently.” 

The court also held that the choice of law provisions did not preclude the Chinese proceedings absent a showing that the Beijing court would not apply California law, and that the Chinese proceedings did not divest the California court of jurisdiction over  parallel litigation. The court concluded  that if the Beijing court failed to provide TSMC with due process, then TSMC could raise this fact to oppose having the Chinese judgment made binding in California.

David Steuer, one of the attorneys who represented SMIC, said:

“It was a very interesting case [because] it takes an intellectual property dispute located entirely in China, between two Asian foundries, and plays it out in a California courtroom.”

He continued:

“We didn’t think the original motion or appeal had merit, and that was confirmed by the [court’s] opinion…. The court’s holding was entirely consistent with recent California authority.”

Attorneys for TSMC declined to comment.

Justices Stuart R. Pollak and Peter J. Siggins joined McGuiness in his opinion.

The case is TSMC North America v. Semiconductor Manufacturing International Corporation, 08 S.O.S. 1862.


Copyright 2008, Metropolitan News Company