Rare Window of Opportunity for Foreign Performance Acts to Establish in Beijing

We have been consulting with a well known entertainment company in establishing a Wholly Foreign Owned Enterprise with plans to become a performance brokerage institution in Beijing engaging in providing commercial performance services in China.

This is a tricky prospect as commercial performance business is listed as an industry   restricted to foreign investment on the Negative List for Access of Foreign Investments. Its presence on this list means that a Chinese party will be required to hold a majority of shares in any such venture.

So should we inform the client the WFOE is a no go?

Not quite. As China lawyers familiar with the latest Chinese laws, regulations and policies, we are refer to the State Council’s Temporary Adjustment for foreign investors in Beijing. This obscure regulation grants a foreign investor special exception to ignore the restriction on foreign investment in connection with a commercial performance brokerage business. This allows our China lawyers to proceed with establishment of the WFOE.

According to the Adjustment, there are four special areas in Beijing, including areas in Shi Jingshan District, Chaoyang District, Shunyi District and Pinggu District, where the registrations and approvals for a WFOEs engaging in commercial performance brokerage business are allowed to be accessed by foreign investors up until May 5, 2018.

Foreign applicants are required to own or rent a business office in any of such special areas, and must complete establishment registration with the local AIC as they would for any other kind of WFOE in Beijing. Additionally, they will be required to acquire a Commercial Performance Operation Permit from the local Culture Bureau and finalize other relevant post-registrations prior to May 5, 2018. This presents a lot of legal procedures for establishment of this kind of company prior to the deadline next spring.

There are now less than 10 months left for foreign investors in Beijing to enjoy the privilege of establishing a commercial performance WFOE. For those international players seeking to engage in commercial performance industry in Beijing, time is of the essence to engage a professional China lawyer and launch your project as soon as possible.

Published by Crys Zheng on July 25th, 2017 tagged Uncategorized | Comment now »

Standard-Essential Patents in China Now

Have Better Protection

The Beijing High People’s Court recently came out with new guidelines providing more detailed requirements for the protection of a standard-essential patent (SEP).

SEP is a patent that  claims an invention that must be used to comply with a technical standard.  Standards organizations, therefore, often require members disclose and grant licenses to their patents and pending patent applications that cover a standard that the organization is developing.If a standards organization fails to get licenses to all patents that are essential to complying with a standard, owners of the unlicensed patents may demand or sue for royalties from companies that adopt the standard. This happened to the GIF/TCP and JPEG standards, for example. Determining which patents are essential to a particular standard can be complex. Standardization organizations require licences of essential patents to be on fair, reasonable, and non-discriminatory (FRAND) terms.

Previously, the guidelines required that a SEP patentee should not be intentionally in breach of its obligation for licensing on FRAND terms. The guidelines, however, did not state what kind of actions violate the FRAND obligation. Moreover, the guidelines did not list the obligation of an accused party who requested FRAND patent license from the SEP patentee.

The new guidelines for patent infringement provide detailed of actions considered willfully violating the FRAND obligation. The new guidelines further require the accused party should also diligently negotiate in good faith. If there is no evidence proving that a patentee willfully violates its obligation and the accused party has no apparent fault in negotiation of a license, the court generally should refuse the patentee’s request for ceasing infringement upon receipt of a guarantee from the accused party. On the other hand, although not clearly stated in this new guidelines, we notice from a case from the Beijing IP Court (IWNCOMM VS SONY) that if the accused party has a clear fault, the court will regard it as a willful infringement and apply triple compensation.

This change in the law gives explanations regarding the protection of SEP and a more powerful protection therefor. It also provides clear rules for formulating a negotiation strategy under FRAND terms.

Published by Edward E. Lehman on July 24th, 2017 tagged Uncategorized | Comment now »

China “Prosecutors” to Initiate Public Interest Litigation

After two-year pilot program, on June 27, 2017, the Standing Committee of the National People’s Congress issued a new decision authorizing the people’s Procuratorate (similar to a Prosecutor’s Office) to engage in public interest litigation on behalf of the State. The new decision came into force on July 1, 2017. These public interest litigations are a welcome development in recognizing and enforcing public rights, in situations where individuals may otherwise be at a disadvantage. The public interest litigation represents a new form of “policing” by one government agency against others, and against private and state owned enterprises. This is expected, along with the high profile anti-corruption campaign, to make the government overall more effective, increase public trust in institutions, and ensure high profile Party members complete their jobs effectively.

The pilot program has been a two year project authorizing the people’s procuratorate to take part in the public interest litigation in Beijing, Nei Menggu, Jilin, Jiangsu, Anhui, Fujian, Shandong, Hubei, Guangdong, Guizhou, Yunnan, Shanxi and Gansu. As of June, 2017, the people’s procuratorate has dealt with 9053 cases involving public interest issues, wherein 1150 cases went as far as litigation. The People’s courts have concluded 458 cases and 437 of those were resolved in favor of the position taken by the people’s procuratorate.

Compared with the previous pilot program, the new program has enlarged the scope of qualifying public interest matters to confer the power on the people’s procuratorate to initiate a civil lawsuit against any act harmful to the protection of the ecological environment and public resources, and any practice in the food and drug safety field that infringes upon the legitimate rights and interests of consumers. The Procuratorate also gains the right to initiate a procuratorial proposal to the administrative authority to urge such authority to lawfully perform its duties as to supervision and management of the ecological environment and public resources, and enforcement of food and drug safety, protection of state-owned assets and lawful granting of land use rights for state-owned land. If such administrative authority subsequently fails to perform its duty in accordance with the law, the people’s procuratorate may then directly file an action against it at the People’s Court.

Published by Crys Zheng on July 19th, 2017 tagged Uncategorized | Comment now »

China Intend to Establish the Drug Patent Linkage System

On May 12th 2017, the China Food and Drug Administration issued an Announcement on Soliciting Opinions on the Relevant Policies on Encouraging Innovation in Drug and Medical Equipment and Protecting the Rights and Interests of Innovators.

According to the new Draft, China intend to establish the drug patent linkage system. The intended new system including below procedures:

1)      The drug registration applicants shall submit the statements on relevant rights involved which they have already known and should know when filing an application for drug registration;

2)      In the case. the applicant who challenges relevant drug patents, they are required to state that their challenge shall not constitute an infringement on relevant drug patents and notify the relevant drug patent holders of its challenge within 20 days and the relevant drug patent holder may bring a patent infringement suit to the judicial authority within 20 days upon receipt of the applicant’s notice and notify the drug evaluation institution at the same time;

3)      Once the drug evaluation institution receive the relevant supporting documents on opening a file on the patent infringement case from the judicial authorities, the  institutions may set a pending period lasting for up to 24 month. And during such period the technical appraisal work on accepted drug registration applications shall not be ceased.

4)      The drug evaluation institution will decide to approve or reject the drug applied for registration, depending on the compromise conclusion reached between parties concerned or the effective ruling made by the judicial authorities. However, if the judicial authorities fail to make an infringement ruling beyond the pending period, the drug appraisal institutions shall be allowed to approve drug coming on the market.

5)      In the case the applicants have not stated that such applications involve relevant patents while the patent holders file an infringement suit, the drug appraisal institutions shall set such a pending period for such applications according to the case handling results of the judicial authorities

By introducing the patent non-infringement declaration, the pending period for approval and other procedures, the new Draft will primarily establish the drug patent linage system in China and will be better protect patent holders against the infringement of their rights and safeguard the patent rights at the time when an application is filed for launching the drug into the market, which will be on a large extent to reduce the disputes over infringement on the drug patent.

Published by Bonnie Zhang on July 13th, 2017 tagged Uncategorized | Comment now »

Less Restrictions for Foreign Investment Access to Pilot Free Trade Zones

On June 5th 2017, the General Office of the State Council issued the new version the Special Administrative Measures for Foreign Investment Access to Pilot Free Trade Zones (Negative List 2017 Edition), and the new version of Negative List which will be take n effect on July 10th this year will be adopted in all the 11 Pilot Free Trade Zones in China.

Compared to the old version of Negative List (2015 Edition), in the new edition there are only 95 clauses and 27special administration measures were deleted which means these 27 areas will be opened to foreign investment. And the new opened areas are mainly focus in manufacturing and services sectors, especially in the high-end manufacturing areas such as the aviation and car manufacturing, and the banking and insurance service areas.

From the new Negative List, we can see the restrictions for foreign investment becoming less, which represents the further innovation of China’s foreign investment management mode and  brings a new round of business opportunities for foreign investors.

Published by Bonnie Zhang on June 29th, 2017 tagged Uncategorized | Comment now »

New Rules on Providing News Services in China. Same as the Old Rules.

New Rules on Providing News Services in China. Same as the Old Rules.

On May 2, 2017, the Cyberspace Administration of China promulgated the Administrative Provisions for Internet News Information Services (Provisions),which came into effect on June 1, 2017.

In comparison to the former rules, the new Provisions on operation on internet news information services is more explicit. Regarding the contents of the news information, it is clearly provided that the News information includes relevant reports and commentaries on politics, economy, military affairs, foreign affairs, and other public affairs, as well as relevant reports and commentaries on social emergencies. Therefore, the sports, culture, technology and commercial reports news reports will not be governed by the Provisions. As to applicable channels for transmission, internet websites, applications, forums, blogs, micro-blogs, official accounts, instant message tools, network-based broadcast, etc. are covered in the Provisions. In respect of the service mode, due to the service providers are engaging in different types of works, the internet news information service has been divided into services of collecting, editing and releasing internet news information, services of reposting news information and services of providing a platform to spread news information.

As for the access of foreign investment in the internet news information service, the Provisions follow the former rules and provide that no organization may establish a company engaging in internet news information services in the form of a Sino-foreign equity joint venture, Sino-foreign cooperative joint venture or wholly foreign-invested enterprise.

If an internet news information service provider cooperates with a domestic or overseas Sino-foreign equity joint venture, a Sino-foreign cooperative joint venture or a wholly foreign-invested enterprise in businesses relating to Internet news information services, it shall report their cooperation to the Cyberspace Administration of China for security evaluation. The Provisions further prescribe that the internet news information service providers shall separate their news collection and editing services from other operational businesses. Non-government-originated capital (which include the foreign investment) shall not be used for services of collecting and editing internet news information. Even the principal or chief editor of the service provider shall be Chinese citizen.

Published by Crys Zheng on June 28th, 2017 tagged Uncategorized | Comment now »

A mainland Chinese Cryptocoin with valuable IP

A mainland Chinese Cryptocoin with valuable IP, the next new, new thing the west does not know about?

Okay, I was among the very first users of something called 微信 (wechat) when i first began using it, and for some time I thought it was a kind of “toy”, a Chinese watered down version of What’s App. It is now a media, informations, and business juggernaught with something like 800m users world wide (or so i am told). Wow, me a long time lawyer living and working in manned China for many years now, was caught completely by surpise. Okay, so maybe this is something, the next new, new thing, maybe it is not, but time will tell, and you can say you saw it here I guess first?

Well my practice involves corporate commercial, finance, mergers, IP and tax mostly, and with the rise in the rules and regulations recently imposed by the OECD effective January 1, 2017 which makes financial transactions burdened with reporting requirements by financial institutions whereby all transactions must be traced to the beneficial owners and their purposes (which used to be the requirements for Americans) there is more and more interest in cryptocurrencies. Is this a cause and effect, who knows? Not me, I am a a simple corporate commercial lawyer with intellectual property and tax training, not an economist.  All I know is what I know from my worldview, and what i see is more and more interest in cryptocurrency from my clients. Which one’s are good which one’s are fly-by-night (Bitcoin, Potcoin which hired Dennis Rodman as a pitchman and supported his recent trip to North Korea, still dunno). From where I sit, I can see something interesting happening. I do not own cryptocurrency, and i am not touting is at all but there are some very interesting developments from what i see  in my work in on the ground in China.

mainland China’s “Antshares” is a crypto currency/digital assets blockchain that might just be the upcoming Blockchain coder’s ultimate dream.

For now, the majority of information about the coin is only available in Chinese (this is where I have stumbled across it in our law practice representing Chinese businesses and high net-worth individuals of all stripes). As I recall Wechat too was only available only in Chinese when i joined. From what I can tell the product itself is still in its early development stages. But because it is available only in Chinese language (for now) and the fact that it is a cryptocurrency developing in mainland China are the factors alone make for an extremely low current coin value and market cap. I believe the true value of this coin is higher, how much higher? higher. At least one unsubtatiated source I have read is claiming 10,000% higher, but who knows, rumors about business here among the 老百信 (masses) is a full time sport. There is a reoccurring buzz in China about Antshares, again i do not own any and know of know-one else that owns such shares, but I think there might be something there.

Here are some reasons why “Antshares” might just be currently the most undervalued cryptocoin out there:

• A serious platform built by serious people. Who seems to have the educational skills and abilities but what’s more is what is not said, this is a country with a one-party rule, if they exist one might conclude they are either “off the reservation” or they are totally connected and allowed to proceed because of these connections.

• Antshares integrates E-Contracts, a way to register intellectual property, actual contracts, and other forms of ownership. Since China’s laws on patents and intellectual property have been… loose (to say the least) this system may give Chinese businesses the opportunity to better register ownership of intellectual material.

• (Rumors of) plans to internationalize and have a better integration with the West. We’ll know more on June 22nd.

• A nice looking, consumer-friendly cross-platform wallet app.

• Smart Contracts 2.0: A way to write smart contracts in any of the the popular programming languages (C#, Javascript, and more). Still in development.

Another major point is that China is a land of investment & opportunity. Businesses and individuals not only strive to maximize Crypto Currencies’ potential alone, but also the actual products being developed on the Blockchain (in this case, built on Antshares). Applications built on Antshares by reputable Chinese businesses can potentially receive major investments. Think Ethereum ICOs, but with businesses truly having experience with increasing value in terms of actual development rather than just a focus on marketing and speculation. The kicker, is the everyone knows the national currency the 人民币 RMB is not a “fully convertible currency” so for a a whole host of reasons clever Chinese folks are always looking for solutions on legal (and I guess illegal) currency conversion. The Antshares is now in the middle of this “perfect storm” and confluence of events make this something to have a look at perhaps because necessity is indeed the mother of invention. Is this an issue for folks in rural Illinois, whereby someone wants to develop a new currency, probably not, not a big incentive to get off the couch. But in China, there are approximately 300 million people who have a lot of “buying power” under the State Administration of Foreign Exchange (SAFE) these Chinese may only send out up to 50K USD per year, a well established cryptocurrency which would not be under the perview of SAFE would be and could be the catalyst to increase an exit of capital in some way.

What I have learned is Antshares’ market cap is currently in the same area where you find crypto currencies that are purchased with Counter-Strike skins. My guess is Antshares does not belong there. Some netizens in Chinese language opine Antshares belong in the Coinmarketcap Top 10 regarding the value it brings high net worth Chinese, Chinese SME businesses and even Chinese developers.

Considering the recent rapid speed in development and publicity/attention Antshare is receiving from the Chinese public, netizens, and Chinese businesses (more importantly this publicity is not closed down nor seems to be prohibited). I do not have to be an economic genius (I am not) to predict a price of over $100 per Antshare within the next 18 months. We live in interesting time to be sure.

Published by Edward E. Lehman on June 26th, 2017 tagged Uncategorized | Comment now »

Hiring for your China Representative Office. It’s Complicated.

Hiring for your China Representative Office. It’s Complicated.

A Representative Office (RO) established by foreign enterprise under Chinese laws and regulations does not have the qualification of a legal person, and it shall not conduct any profit-making activities. According to Chinese laws and regulations, when an RO decides to recruit Chinese workers, it must entrust a service unit which has approved by Chinese Government to engage in labor dispatching services for employing Chinese personnel. In China, there are strict rules and complicated procedures for a service unit to apply and become a qualified labor dispatch entity. In order to use the Chinese personnel in line with laws and regulations, an RO must cooperate with the dispatching entity, like the FESCO and CIIC in China. There would be an Entrustment Agreement concluded between the RO and FESCO, and FESCO shall directly sign a labor dispatch agreement with the dispatched worker and then dispatch him/her to the RO.

According to Chinese relevant provisions on labor dispatch, the labor dispatch entity shall be responsible for paying remuneration and social insurance fee for the dispatched worker. In case that the worker is dispatched to another region, the labor dispatch entity shall obtain the social security insurance coverage for the dispatched worker at the place where the employer concerned is located, and pay the social security insurance premium in accordance with the rules at the place where the employer concerned is located. In case that the labor dispatch entity does not have any presence at the place where the employer locates, the employer will complete the formalities for obtaining social security insurance coverage and pay the social security insurance premium for the dispatched worker on behalf of the labor dispatch entity. Besides, not like the situations where the dispatched workers are employed and working in other types of companies, there is no limitation or restrictions on the proportion of dispatched workers employed for temporary, auxiliary or substitutive job positions in an RO.

Published by Crys Zheng on June 13th, 2017 tagged Uncategorized | Comment now »

Who Will Be The Qualified Candidate For Your Company’s Legal Representative?

Recently, we are requested to provide legal advice on the qualifications for the legal representative of a company. This question may not be paid enough attention of many people, however, since China has strengthened the compliance management for enterprises, and cracked down the dishonesty behaviors. While legal representative as the person who legally represents a company, is authorized with many rights of the company, and at the same time, will be personally responsible for the company’s non-compliance or illegal behaviors under some circumstances. Therefore, there are limits on the qualification of legal representative provided by law. And here, we will discuss these qualifications for legal representative of a company (non-listed company).

Subject to relevant laws, the candidates for the legal representative of a company shall be its chairman of board of directors, executive director or its manager. Therefore, the legal representative shall firstly, take such positions in the company which proposes to appoint her/him as the legal representative. Further to this, as the directors, supervisors and other senior officers of a company, they shall comply with laws, administrative regulations, and the articles of association and shall owe duties of fidelity and due diligence to the company. They are prohibited to conduct any activities which breach their duties of fidelity and due diligence to the company, as well as any activities which have conflict interests with the company.

Here, I want to invite your attention to this pre-condition of the legal representative of a company. Since I found that under some circumstances, the legal representative is removed from the position as the chairman of board of directors/executive director, or general manager, however, still serve as the legal representative. This is inconsistent with the provisions of law.

Further to the aforementioned requirements, the qualifications for the legal representative of a company are as below:

  1. Has full capacity of civil conducts;
  2. Who is not serving criminal sentence or being taken criminal compulsory measures;
  3. Who is not the person wanted by a public security organ or a state security organ;
  4. In the event of being convicted of any criminal offence in the nature of corruption, bribery, disseizin, misappropriation or disrupting the economic order of the socialist market, five years has been elapsed since any penalty imposed has been completed, or in the event of being deprived of political rights due to any crime, five years have elapsed since the penalty was completed; or in the event of being sentenced to a criminal penalty due to any other crime, with the execution period having expired for more than three years;
  5. In the event of serving as former director, factory director or manager of a company or enterprise which has been declared bankrupt and liquidated in circumstances where he was personally responsible for the bankruptcy of the company or enterprise, three years have elapsed since the bankruptcy and liquidation of the company or enterprise was completed;
  6. In the event of serving as former legal representative of a company or enterprise which has had its business license revoked and has been ordered to close its business operations due to any violation of law in circumstances where the former legal representative was personally liable for the revocation of the business license, three years have elapsed since the date of revocation; and
  7. Has no significant unpaid due debts;
  8. Who is not under any other circumstances provided by the law of China, which shall not serve as the legal representative of a company.

If a person who has not fulfilled the qualifications provided by the laws was appointed as the legal representative, the appointment for such person is invalid, such person who has been appointed to take such positions shall be removed accordingly.

What’s more, under some special circumstances, the person involved shall not serve as the legal representative of any company within the statutory period, and in the event that the appointment has been made and enforced, such person shall be removed and corresponding registration shall be changed accordingly. Any application for registering such person as the director, supervisor or any other senior officer will not be accepted by the competent authorities.

In conclusion, ask a lawyer for legal advice on the qualifications of the legal representative of your company before making the appointment.

Published by Myra Kong on June 9th, 2017 tagged Uncategorized | Comment now »

Guidance for Acquiring Class A Mapping Licence in China

We have had several inquiries from companies seeking to become a qualified enterprise operating the Class A Mapping business within China.

Such business is not rare in China, according to the latest name list published by the National Administration of Surveying, Mapping and Geoinfomation, there are 898 companies holding Class A Mapping Licence in China by 2015, wherein Beijing has 107 companies holding Class A Mapping Licence. For Class B Mapping Licensed companies, the statistic shows that there are 3122 companies in China and 138 companies in Beijing which has such licence.

There are 4 classes for mapping licence in total. The Class A Mapping Licence is supervised and approved/granted by the National Administration of Surveying, Mapping and Geoinfomation, while the other 3 classes are governed by the Administrative department of Surveying, Mapping and Geo information at provincial level. Companies should get licences for different levels in sequence, D, C, B then A. Cross level application will not be allowed.

To get a Class A Mapping Licence, the company shall meet following conditions:

1. Having the legal person status of an enterprise or institution;

2) Having the professional technical personnel compatible with the conduction of surveying and mapping; (The professional technical personnel conducting surveying and mapping shall have the corresponding practice qualification. Surveying and mapping personnel shall conduct surveying and mapping work with surveying and mapping work certificates. The ID Certificate, Graduation Certificate, Qualification Certificate, Labor Contract and Social Insurance payment certificate shall be submitted for examination during application.);

3) Having the technical equipment and facilities compatible with the conduction of surveying and mapping; (ownership certificate of equipment shall be submitted during application. It is required to have enough working place, at least 600㎡, to operate mapping business, and certificate of such working place shall also be submitted during application.);

4) Having a sound technical and quality guarantee system and the management system of surveying and mapping results and the materials and archives; (Regarding the mapping results, applicants shall submit their former performance and capability certification, which shows that the total value of mapping services completed in recent 2 years is not less than RMB 16,000,000, and there are more than 3 surveying and mapping projects are successfully passed the investigation and are qualified by Quality Agency recognized by the geoinformation administration at provincial level.)

Also, there are many mapping companies publicly traded in China. For example, Beijing Unistrong Science & Technology Co., Ltd (stock code: 002383); Beijing SuperMap Co., Ltd. (stock code: 300036);

Beijing NavInfo Science and Technology Co., Ltd. (Stock code: 002405);

Beijing Egova Science and Technology Co., Ltd. (Stock Code: 300075)

Only domestic companies and JVs in which the foreign shareholding is less than 50% are allowed to conduct mapping and conveying business after acquiring approval and licence from competent authorities. In practice, the government restricts foreign surveying and mapping business. In the December of 2016, the competent authority, i.e. the National Administration of Surveying, Mapping and Geoinfomation issued its notice on further strengthening the administration of foreign-related surveying and mapping, and it requires all the companies holding any class mapping licence to complete a survey table to report their foreign related issues including whether the percentage of the foreign shareholding, direct/indirect holding of shares by any foreign investor, any foreign actual controller, VIE mode of operation and whether the parent company is foreign related, etc.

Therefore, if you would like to engage in mapping or conveying business, get a Chinese partner and find a professional China lawyer will be your first step to take.

Published by Crys Zheng on June 7th, 2017 tagged Uncategorized | Comment now »