Changing Trends in Business Laws of China

China being the most populous country in the world needs to have the strictest and detailed regulations. Chinese laws are the oldest and traditional in the world. In the early 20th century, the Chinese regulations were a collection of Chinese traditional laws and the Western Influences. It was always hard to change those laws and regulations. The business sector of China is also bounded by some rules and regulations. There are clear boundaries and limitations which should be kept in mind in doing a business. Well, China business is a fastest growing industry. And there are some of the trending issues which seem to have an impact on the laws of the state. Let’s put an eye on these trending issues which influence laws in business world.

Published by Edward E. Lehman on February 5th, 2016 tagged China News | Comment now »

Expecting in China – review of Employment Laws for pregnant and nursing employees

Let’s take a look at the China Employment Laws regarding pregnant and nursing employees. As you may be aware, China has set very high expectations on how would-be mothers are treated in the workplace. Foreign companies are many times not up to date with these laws and one such American company had to pay a hefty sum for violating the rules.

The most important thing that the China employment law highlight as to this issue is that an employer cannot terminate the labor contract of a pregnant or nursing mother, or include a mother in a mass layoff. Pregnant women cannot be fired from their working position by giving them a 30 days’ notice or an additional one month salary. If the labor contract of a worker expires while they are pregnant, it must be extended until the mother has completed nursing. In legal terms, that means till the baby is one-year-old.

Employers of soon to be mothers are also prohibited from having them work night shifts or overtime particularly after the mark of seven months pregnant. This rule also applies to mothers who are nursing. Mothers are also allowed to provide a certificate from their health care provider if they are unable to perform their usual work, in which case, employers are to oblige to by reducing or adjusting their workload and responsibilities.

Female workers are entitled to special leaves that include:

•    Total 98 days of maternity leave which starts approximately 15 days before the predicted due date.

•    Additional special leave if required for “late childbirth.”

•    In the case of a difficult childbirth, the employee is given an additional 15 days off.

•    If the employer is expecting multiples, they are given an additional 15 days for each child i.e. twins, triplets, etc.

•    42 days off is given in case the employee miscarries a baby after 4 months of pregnancy.

The employers are also required to give their nursing mothers an additional hour off each day until the child is one-year-old. In the case of multiples, they are given an additional hour per day for each additional baby they have. Pregnant employees are allowed to go for their regular medical checkups during work hours. The employers of the pregnant workers, however, cannot ask them to compensate for the lost work time by working overtime.

Employers in China should keep in mind the above mentioned Labor laws. Failure to oblige by these laws can face civil damages, penalties, and even criminal liability.

Published by admin on February 4th, 2016 tagged China News | Comment now »

China Relaxes rule on One-child policy

China has officially ended its one child per family rule and allowed married couples to have two children. The change in the policy is a result of the country’s ageing population and decreasing workforce.  The new regulations took effect on 1st January, 2016. The One Child rule was originally enacted in 1970, and restricted married couples from having more than one child. Penalties included fines and forced abortions.

The rule however, had a few exceptions. It allowed couples from rural areas to have two children if the first born was a girl. This was termed as “one and a half child” policy.

Experts from the National Health and family Planning Commission have estimated that around 3 million additional babies will be born each year and will add to a total of around 30 million people to China’s workforce by the year 2050. Experts have predict that the change will not be of much help to China’s population crisis.

A professor affiliated with the Chongyang Institute for Financial studies at Renmin University, Beijing comments on the new policy, “more children will mean more maternity homes, hospitals, schools, etc. it will certainly result in a major investment in such areas”.  The two children per family rule will also increase spending of those families which opt for two children, which may have some effect to boost the slowing economy of China.

Published by admin on February 3rd, 2016 tagged China News | Comment now »

Intellectual Property Anti-Monopoly Rules

After years of drafting and by taking public opinions, the State Administration for Industry and Commerce (“SAIC”) promulgated the Provisions on the Prohibition of the Abuse of Intellectual Property Rights to Exclude or Restrict Competition (“Provisions”) on April 7, 2015. The SAIC is one of the competent authorities for enforcing the Anti-Monopoly Law of China (“Anti-Monopoly Law”). The Provisions guide the law enforcement activities of one of the important fields of the Anti-Monopoly Law.

Overview

The Provisions apply to those IP related protocols or behaviors (including patent pool and the formulation and implementation of the standards) and the unilateral behavior performed by the operator who holds a dominant market position. The Provisions are aimed at stopping operators from abusing intellectual property rights to exclude or restrict competition in order to protect fair market competition and to encourage innovation. The Provisions may have significant impact on the licensing of IP within the territory of China, especially for those licensing behaviors of the operators who have large sales or hold the essential patent of the standards in the relevant market.

Example provisions are as follows:

l   “An operator who is of dominant market position” may not, without justification, refuse to license other operators to use its intellectual property rights on reasonable terms under the circumstance that the intellectual property rights constitute a necessary for the competition in relevant market. It is also forbidden to implement specific exclusive transaction (including requiring transaction counterparts to license back the IP exclusively), to implement tied sale, to implement differential treatment on the transaction counterparts with the same conditions and to implement other specific behaviors without justification.

l  Prohibit specific behaviors implemented by the members of patent pool; and

l  Regulate the IP rights holders’ behaviors during the process of formulation and implementation of the standards, requiring that when licensing the “essential patent of the standards”, the holders may not violate the fair, reasonable and non-discriminatory principles (“FRAND”).

The Provisions also regulate the “Safe Harbor” principle for parts of the monopoly agreements entered into between the competitive operators and parts of the monopoly agreements concluded between the operators and the transaction counterparts. The range and conditions for applying the “Safe Harbor” principle are comparatively strict. Meanwhile, the Provisions generally illustrate the “Rule of Reason” for recognizing whether specific IP licensing act violates the regulations of the Anti-Monopoly Law or not.

Since the AIC only has the law enforcement power towards the acts apart from the pricing or the deal of merger and acquisition (pricing and M&A are respectively controlled by the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce (“MOFCOM”)), the Provisions did not incorporate matters related to “unfair high price” licensing fee which was the focus during NDRC’s investigation for Qualcomm’s case. Besides, although the Provisions are the guidance for AIC’s law enforcement towards those cases pertinent to IP and competition, neither the MOFCOM nor the NDRC is bond by the Provisions. It is not clear whether the MOFCOM or the NDRC will comply with the Provisions during their further investigations.

Detailed regulations in the Provisions

Relevant Market and “Dominant Market Position”

Article 3 For the purpose of the Provisions, “abuse of intellectual property rights to exclude or restrict competition” refers to the operators violating the Anti-monopoly Law when exercising the intellectual property rights, implementing monopoly agreements, abusing dominant market positions and conducting other monopolistic behaviors (except for the price monopoly).
For the purpose of the Provisions, “relevant markets”, including the relevant commodity markets and the relevant geographic markets, are defined pursuant to the Anti-monopoly Law and the Guidelines of the Anti-monopoly Commission under the State Council concerning the Definition of Relevant Markets, with the effects of intellectual property rights, innovation and other factors taken into consideration. In relation to intellectual property licensing and other anti-monopoly enforcement, the relevant commodity markets may be either technology markets or product markets containing specific intellectual property rights. Relevant technology markets refer to the markets formed through the competition between technologies involved in the exercise of intellectual property rights and alternative similar technologies.

The Provisions specified that “An operator owning the intellectual property rights may constitute one of the factors to recognize its dominant market position, but an operator shall not be directly inferred to have dominant market position in the relevant market only based on its ownership of the intellectual property rights.” However, the standard for determining the dominant market position based on the market share by the Anti-Monopoly Law is relatively low. It may be assumed that one or more operators have a dominant market position if: 1. An operator has 50% or higher market share in a relevant market; 2. Two operators have 66% or higher market share in a relevant market; or 3. Three operators have 75% or higher market share in a relevant market.

“Safe Harbor”

Article 13 and Article 14 of the Anti-Monopoly Law state many kinds of forbidden monopoly agreements. Referring to the pricing, they are beyond the range for applying the Provisions. Paragraph 6 of Article 13 and Paragraph 3 of Article 14 are save clauses for other monopoly agreements. Article 5 of the Provision regulates as follows:

Article 5 If an operator’s exercise of intellectual property rights falls under either of the following circumstances, the relevant agreement may not be regarded as a monopoly agreement prohibited in Item 6, Paragraph 1 of Article 13 and Item 3 of Article 14 of the Anti-monopoly Law, except there is contrary evidence indicating that such agreement is of effects to exclude or restrict competition:
1. the competitive operators’ share in the relevant market affected by their behaviors does not exceed 20% in total, or there are at least four alternative technologies under other independent control in the relevant market which may be obtained at reasonable costs; and
2. neither of the shares of the operator and transaction counterparts in the relevant market does not exceed 30%, or there are at least two alternative technologies under other independent control in the relevant market which may be obtained at reasonable costs.

Article 15 further specified that if when the license agreement is entered into, the parties are not in a competitive relationship, and a competitive relationship arises after the agreement is entered into, such agreement shall not be regarded as a monopoly agreement between competitors.

This is the first time for law enforcement agencies to regulate such “Safe Harbor” principle, and it is very positive. However, it should be noted that the application of the aforesaid “safe harbor” principle is relatively limited, and it is not applicable for those agreements mentioned in paragraph 1 to paragraph 5 of Article 13 or paragraph 1 and 2 of Article 14, including the split sale market agreements or the fixed sale price agreements.

Refuse to license for the “necessary facility”

Article 7 An operator who is of dominant market position may not, without justification, refuse to license other operators to use its intellectual property rights on reasonable terms so as to exclude or restrict competition under the circumstance that the intellectual property rights constitute a necessary facility for the relevant production and operating activities.
Recognition of the act in the preceding paragraph needs to consider the following factors at the same time:
1. there are no other reasonable substitutes for the intellectual property rights in the relevant market and the intellectual property rights are necessary for other operators to participate in competition in the relevant market;
2. refusal to license the intellectual property rights will have adverse impact on competition or innovation in the relevant market, and harm the consumer or public interests; and
3. licensing the intellectual property rights will not cause unreasonable harm to the operator.

Prohibited behaviors implemented by the operators who hold dominant market position

Article 10 An operator who is of dominant market position may not, without justification, implement the following behaviors with unreasonable restrictive conditions so as to exclude or restrict competition in exercising intellectual property rights:
1. requiring the transaction counterparts to license back the technologies improved thereby exclusively;
2. prohibiting the transaction counterparts from questioning the validity of its intellectual property rights;
3. restraining the transaction counterparts from making use of the competitive commodities or technologies in the case of non-infringement of intellectual property rights after the expiration of the license agreement;
4. continuing to exercise the rights to the intellectual property the protection period of which has expired or which has been determined to be invalid;
5. prohibiting the transaction counterparts from trading with any third party; and
6. adding other unreasonable restrictive conditions to the transaction counterparts.

Patent Pool

Article 12 An operator may not make use of patent pool to exclude or restrain competition in exercising intellectual property rights.
Members of patent pool may not use patent pool to exchange the yield and market segmentation and other sensitive information in relation to competition, and reach any monopoly agreement prohibited in Articles 13 and 14 of the Anti-monopoly Law, except the operator can demonstrate that the agreement reached complies with the provisions of Article 15of the Anti-monopoly Law.
A patent pool administration organ who is of dominant market position may not, without justification, implement the following acts of abuse of dominant market position by use of patent pool so as to exclude or restrict competition:
1. constraining the members of patent pool from licensing patents as independent licensors other than in patent pool;
2. constraining the members of patent pool or licensees to research and develop, independently or jointly with any third party, technologies competing with the parent pool;
3. forcing the licensees to license back the technologies improved or researched and developed thereby exclusively to the patent pool administration organ or the members of patent pool;
4. prohibiting the licensees from questioning the validity of patent pool;
5. treating differently the members of patent pool with the same conditions or the licensees in the same relevant market in terms of the transaction conditions; and
6. other abuse of dominant market position identified by the State Administration for Industry and Commerce.
For the purpose of the Provisions, “patent pool” refers to an agreement arrangement under which two or more patentees license the parents they own respectively to a third party in a certain manner, such as establishing a special joint venture for such purpose and entrusting a member of parent pool or an independent third party to administrate.

Essential Patent of the Standards

Article 13 An operator shall not use the formulation and implementation of the standards (including the mandatory requirements of national technical specifications, hereinafter the same) to exclude or restrict competition in exercising intellectual property rights.
An operator who is of dominant market position may not, without justification, implement the following acts of excluding or restricting competition in the course of formulation and implementation of the standards:
1. when participating in the formulation of the standards, deliberately not disclosing information on its rights to the standards developing organization, or explicitly waiving its rights, but claiming its patent rights to the implementers of a standard after the standard involves the patent.
2. after the patent has become an essential patent of the standards, in violation of the fair, reasonable and non-discriminatory principles, implementing denial of license, conducting tied sale of products, adding other unreasonable trading conditions in the transaction or implementing other acts of excluding or restricting competition.
For the purpose of the Provisions, the “essential patent of the standards” refers to the patent which is essential to the implementation of such standards.

Published by Crys Zheng on February 3rd, 2016 tagged China News | Comment now »

Kitchen God Story

In Chinese folk religion, The Kitchen God also known as the Stove God, named Zao Jun, Zao Shen, or Zhang Lang, is the most important of a plethora of Chinese domestic gods that protect the hearth and family.

Though there are many stories on how Zao Jun became the Kitchen god, the most popular dates back to around the 2nd Century BC. Zao Jun was originally a mortal man living on earth whose name was Zhang Lang. He eventually became married to a virtuous woman, but ended up falling in love with a younger woman. He left his wife to be with this younger woman and, as punishment for this adulterous act, the heavens afflicted him with ill-fortune. He became blind, and his young lover abandoned him, leaving him to resort to begging to support himself.

Once, while begging for alms, he happened across the house of his former wife. Being blind, he did not recognize her. Despite his shoddy treatment of her, she took pity on him and invited him in. She cooked him a fabulous meal and tended to him lovingly; he then related his story to her. As he shared his story, Zhang Lang became overwhelmed with self-pity and the pain of his error and began to weep. Upon hearing him apologize, Zhang’s former wife told him to open his eyes and his vision was restored. Recognizing the wife he had abandoned, Zhang felt such shame that he threw himself into the kitchen hearth, not realizing that it was lit. His former wife attempted to save him, but all she managed to salvage was one of his legs.

The devoted woman then created a shrine to her former husband above the fireplace, which began Zao Jun’s association with the stove in Chinese homes. To this day, a fire poker is sometimes referred to as “Zhang Lang’s Leg”.

When the Jade Emperor learned of the story, the God felt pity on Zao Jun. The God recognized that Zao Jun felt remorse for his past bad behavior, and this remorse led to his suicide. So the Jade Emperor appointed Zao Jun as the Kitchen God. Eventually, people came to respect him.

It is believed that on the twenty third day of the twelfth lunar month, just before Chinese New Year he returns to Heaven to report the activities of every household over the past year to the Jade Emperor (Yu Huang). The Jade Emperor, emperor of the heavens, either rewards or punishes a family based on Zao Jun’s yearly report.

This is the day Chinese families traditionally showed their respect to the Kitchen God, to ensure that the household had food for the coming year. Chinese families typically have a special kind of sweet food on this day, called ZaoTang (灶糖).

Published by Jacob Blacklock on February 2nd, 2016 tagged China News | Comment now »

China Construction markets to lead the way!

China has one of the biggest construction markets in the world. Some past ventures of China, such as the Beijing Olympics held in 2008, the Shanghai World Expo of 2010, and many others provided enormous opportunities for foreign companies to undertake projects in China’s construction industry.  However, the booming construction industry of China can be challenging for many foreign construction companies due to its complex laws and regulations.

Even though, china opened up overseas trade and investment in 1978 – the construction industry remained closed to foreign investment. However, as the need for new construction techniques arose, the government of China revised the Construction Law which allowed private companies to participate in the construction industry. The construction law which came into effect on 1st march 1998 introduced several new laws as well as regulated some of the pre-existing construction rules. The construction law not only provides a comprehensive legal system for the construction industry but set legal guidelines for many other aspects of the construction field such as building permits, contracts, tenders, project supervisions, qualifications for contractors, safety management of construction workers, legal liability, etc.

While the China Construction Law has been revised several times, foreign companies still find it difficult to access the construction market. As many as 9,000 state-owned companies are carrying out construction activities in China while only 400 private companies are participating in construction activities. The registration process for foreign construction companies in China is complex. Foreign companies wishing to perform construction activities in China are required do so by establishing a joint venture or a wholly foreign-owned enterprise.

The foreign companies are also required to obtain a construction-grade qualification which is divided into three categories:

1.    General Contractor Qualification;

2.    Specialty Contractor Qualification;

3.    Labor Subcontractor Qualification.

The qualification determines the maximum size and scale of every project that the foreign construction company is set to undertake. They are also required to have some capital, a sufficient number of workers, relevant experience, and have good track record in the construction field.

Many Foreign construction companies, project managers, and designers have targeted China in hopes of taking part in its continuing infrastructure development. Many positive initiatives have been taken to implement better laws that make the construction industry easier for foreign companies to get started; however, these companies often find that despite the foreign reputation for quality, they are often overlooked in favor of contracting with State-Owned Construction companies, which are better placed to offer lower overall costs.

Published by admin on February 2nd, 2016 tagged China News | Comment now »

Coal Glory in China

China happens to be blessed with endless amount of minerals. The most prominently used mineral of all happens to be coal which is heavily used by the state. As per records, China is excavating the largest amount of coal in the world and also consumes twenty four percent of the total coal excavated yearly. With time, China has overtaken America and rose to number one when it comes to coal production, and falls shortly behind US in its consumption. Every year China establishes a number of new coal based power plants.

Even though coal is a highly effective source of electricity generation, the Chinese government is trying to reorient to newer and cleaner power generation technologies. With pollution being a top concern of Chinese citizens in major cities on the Chinese East coast, continued development cannot rely on the heavily polluting coal to the same extent as in the past.

The government has plans to regulate mining strategies and adopt legal measures. The new laws will give greater protection to the public and increase the rights and safety of miners. The new law dictates that and enterprise must provide safe working conditions. The new Chinese law also allows labor unions to be formed who negotiate with enterprises for rights of the miners. These labor unions will also monitor working conditions for the miners and will have the authority to report breaches of the law to state regulators.

The Law of China on Safety in Mines includes articles that mainly emphasize miner safety. It discusses the safety measures to be adopted by every mining company. The state has published guidelines for compliance. The guidelines outline the supervision, control and checks to be performed in the mining process to ensure safety, and outlines liabilities for the mining company if it violates safety standards.

Goals of the new law are to increase job satisfaction and safety for employees in addition to increase regulatory standards on an industry which is often subject to headlines topping accidents. Formation of labor unions and their role in implementing these laws is central to China’s primary concern with ensuring employment for its large population.

Published by Jacob Blacklock on February 1st, 2016 tagged China News | Comment now »

Space Law

Recently, on a business trip to the South of China, I had the pleasure of being able to watch The Martian on the plane. During the movie various treaties and laws governing space were mentioned. As a lawyer this piqued my curiosity.  So, when I got back to the office, I started to read a bit more on the topic.

This is a very brief glimpse of what I have learned.

Space law covers both the national laws of different countries and also international laws. I won’t be looking at national laws today because there are so many countries and I lack the time.

There are 5 major international treaties which have been adopted to varying degrees by different countries. They are:

There is also a Declaration of Legal Principles Governing the Activities of States in the Exploration and Uses of Outer Space (1963). Interestingly this states that:

The above makes me wonder three things:

  1. Can corporations claim celestial bodies?
  2. Can state owned enterprises claim celestial bodies?
  3. If an entity launched a ‘vessel’ which landed on Mars, would they become De Facto owners of the land underneath?

Anyway, moving on. As I said, this is not intended to be an in depth article on the issue. I found a website written by M. Listner. Here is an extract from his site spacethoughtsblog.wordpress.com/ about the movie and the legal issues it presents.

Watney:               There’s an international treaty saying no country can lay claim to anything that’s not on Earth.

CORRECT:            Article II of the Outer Space Treaty of 1967 states:

Outer space, including the moon and other celestial bodies, is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means.

Watney is essentially correct…

Watney:               And by another treaty, if you’re not in any country’s territory, maritime law applies. So Mars is “international waters.

INCORRECT:       First, there is no “other treaty” that expresses the principle “if you’re not in any country’s territory, maritime law applies.”  The principle Watney incorrectly expressed is the customary rule of free access and passage through outer space.  Significantly, this international norm was not created by a formal treaty like the Outer Space Treaty or its progeny but through customary international law…

As a Star Trek, Star Wars, Star Gate, ….etc fan this area of law has caught my imagination and I’ll be looking into it more, whilst thinking of things like asteroid mining, space pirates and space lawyers.

By Chris Fung.

Published by Chris Fung on January 26th, 2016 tagged China News | Comment now »

Investment approval or Record-filing?

Recently, the National Development and Reform Commission has promulgated the Administrative Regulations on Government Examination, Approval and Record-filing of Investment Projects (Draft for Comment) to seek opinions before June 22, 2015.

The Draft for Comment makes overall institutional arrangements for the sound service and management of enterprise investment projects, which covers the management over various enterprises’ domestic investment projects and domestic enterprises’ overseas investment projects. According to the Draft for Comment, except that the projects that are related to national security and ecological security and involve significant national productivity layout, strategic resources development and major public interests shall be subject to examination and approval according to the provisions, other enterprise investment projects are subject to record-filing system. Overseas investment projects, based on different circumstances, are separately subject to the approval system or ex post record-filing system. Except that overseas investment projects involving sensitive countries and regions, sensitive industries require examination and approval according to the provisions, other overseas investment projects shall be subject to the ex post record-filing system. Please be noted the record is different from the approved project nor afterwards information, but beforehand enforcement record. From the point of the content, the record department only check whether the project is in line with industrial policies; the companies can submit an application form through the online platform, after the company report the investment project information, the company can print out filing result through online system.

If the Comments will be promulgated and implemented, it will be more convenient for foreign investors to set up company in China.

Published by Bonnie Zhang on January 22nd, 2016 tagged China News | Comment now »

Supreme People’s Court issues provisions on the effective protection of the rights of litigation lawyers.

The Supreme court has issued provisions which seek to reaffirm the rights of litigation lawyers. The law protects the rights of litigation lawyers in China, when they are carrying out their duties. Those rights are:

These eight rights should all be very common and uncontroversial in China. However, the Supreme Court has felt the need to reaffirm and emphasize the position. Though lacking new content new content, the significance of this provision is significant. It signals the importance to those in power of the campaign of promoting judicial reform. Furthermore, it highlights that the role of lawyers cannot be ignored; to promote the rule of law, lawyers are indispensable.

Shortly before publication, twelve lawyers and legal scholars attended the Central Political and Law Commission, with the secretary of the Central Political and Law Commission and the Minister of Justice, to have face to face talks about the legal system in China. We believe that the new provisions and these events are certainly linked.

The status and enhanced role of lawyers, needs more than just a few representative events and declarations of principles. There needs to be comprehensive rules, systems and an environment in which said rules are actively obeyed.

This is a major issue to which this short article cannot devote sufficient time. Our views are that:

Authors: Chris Fung & Wang Yu

Published by Chris Fung on January 20th, 2016 tagged China News | Comment now »