Lehman, Lee & Xu’s Managing Director, Edward Lehman, was quoted in an article published by the Wall Street Journal on Wednesday in relation to the nearly $1 billion fine issued by China’s anti-trust authority against Qualcomm, a maker of microchips. Edward Lehman’s areas of practice focus primarily on corporate commercial and regulatory matters, as well as intellectual property law. Mr. Lehman is admitted to the Chartered Institute of Patent Agents, the professional regulatory body which supervises the profession in the United Kingdom. Recognizing Mr. Lehman’s tenure and vast experience in the Chinese legal market, the WSJ quoted him as indicating that the fine against Qualcomm amounts to a slap on the wrist. According to Mr. Lehman, the Chinese regulators simply sidestepped the issue by issuing a fine of this monetary value.
We are pleased that the WSJ has sought the insights of our Managing Director, as this demonstrates our firm’s preeminent standing in the Chinese legal market. In particular, as the case against Qualcomm touches on patentable technology, we are proud that Lehman, Lee & Xu continues to be seen as an authority on this subject in China.
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Published by admin on February 11th, 2015 tagged Uncategorized | Comment now »
On January 19, 2015, China’s Ministry of Commerce (“MOFCOM”) released the first exposure draft of its new Foreign Investment Law (中华人民共和国外国投资法). It has incorporated 170 articles in total and divided them into 11 Chapters. The proposed Foreign Investment Law (“FIL”) is intended to replace three existing laws which currently govern foreign investment in China: (i) the Sino-Foreign Equity Joint Venture Law (“EJV Law”), (ii) the Sino- Foreign Cooperative Joint Venture Law (“CJV Law”) and (iii) the Foreign Invested Enterprises Law (“FIE Law”). The new FIL will significantly change the existing regulatory landscape controlling all foreign investment in China. Also, it will impact on the Variable Interest Entities (“VIE”).
The purposes of the exposure draft are as follows:
1. The FIL shall be considered as the basic law which unifies the management and promotion of the foreign investments.
2. Innovating the management mode of the foreign investments.
3. Abolishing the case-by-case approval on foreign investments, drastically reduce the restrictions on foreign investments and strengthen the information report system.
4. Improving the promotion, protection and supervision systems on foreign investments, changing the governmental function.
The main contents of the exposure draft are as follows:
Definitions of the Foreign Investor and Foreign Investment
Regarding the Foreign Investor, on the one hand, the definition of “foreign investor” is based upon an “actual control” test, i.e. enterprises (whether based onshore or offshore) under the control of foreign investors will be treated as foreign investors. On the other hand, investments made by foreign investors within the territory of China but controlled by Chinese domestic investors, shall be deemed as the investment made by the Chinese investors.
Regarding the Foreign Investment, it covers investments on green areas, investments through merger and acquisition, medium and long term financing, investments on exploration and exploitation of natural resources, acquiring the control over domestic enterprises via contracts or trusts, etc.
Management mode on admittance of the foreign investor
The competent authority is abolishing the case-by-case approval on application for admittance raised by the foreign investors, and the approval will only focus on the special investments listed by correspondence special directory. Contracts or the Article of Association will no longer be examined by the authorities, while they will review the foreign investor itself and the investing conducts. In a meanwhile, the foreign investors shall fulfill their duty of report.
National Security Review
Compared with the existing regulations, the exposure draft expands the scope of matters that are subject to national security review. Any Foreign Investment that damages or may potentially damage national security is subject to a unified national security review regime, regardless of industry sector or whether it is controlled by a Foreign Investor. The exposure draft also improves the conditions for such review and the formalities during the review. Besides, it clears the possible solutions where it is helpful to eliminate the risk of the national security. The exposure draft further regulates that neither administrative reconsideration nor administrative action may be brought up against the decision on national security review.
Information Report System
In order to timely, accurately acquiring the information of foreign investments, the exposure draft provides that three kinds of report regarding information of the foreign investment shall be submitted by foreign investors: (i) Investment project report; (2) Modification Report for investment project; (3) Periodical Report.
Investment Promotion System
Promotional policies, institutions and relevant regulations on special economical zones have been incorporated in this exposure draft for promoting foreign investments.
Protection measures have been reinforced by the exposure draft in respect of protections on levy, expropriation, state compensation, transfer and the intellectual property right.
Complaints Settlement Regime
The draft consolidates the power of the Complaint Coordinating Institution for disposing/settling the disputes between foreign investors, foreign invested enterprises and administrative organs.
Supervision on Foreign Investment
The draft cancelled the advanced approval for the admittance but reinforced the periodical and post reviews on foreign investment and established the credit filing regime for foreign investors.
The draft explicitly stipulates the administrative liabilities and criminal liabilities for those foreign investors who are in breach of the stipulations therein.
According to Chinese Legislation Law, after collection for comments on this exposure draft of the FIL, revisions may be made, and the exposure draft will become the draft for deliberation. Then, a formal legislative bill may be formed. Then, the legislative bill will have to go through the procedure of revision and voting for final promulgation.
Published by admin on February 10th, 2015 tagged Uncategorized | Comment now »
Recently, China’s ministry of Commerce (MOFCOM) released the initial draft of its proposed revised Foreign Investment Law (FIL) for public review and commentary. The draft, presents a significant change in the thinking of Chinese Regulators as it would see the consolidation of what are now three separate laws. The proposed FIC would take the place of the current Wholly Foreign-Owned Enterprise Law (WFOE Law), the Sino-Foreign Equity Joint Venture Law (EJV Law) and the Sino- Foreign Cooperative Joint Venture Law (CJV Law).
Of particular note in the draft FIL is a substantial reform to the standards for determining whether a given foreign company is indeed a “Foreign Investor.” Previously, Chinese law looked to the place of company registration to determine whether a company investing in China would be considered foreign. Under the current system, where a Company Based in the USA established a WFOE, and the WFOE subsequently established a subsidiary Chinese company, that Chinese company would not be considered a Foreign Invested Enterprise (FIE) under the Law. Additionally, where one or more Chinese nationals established a company in a foreign jurisdiction, and that company established a presence in China, the new China company would be considered a Foreign Invested Enterprise.
Under the proposed new system, the law would look to “Actual Control,” meaning that company established in China by the WFOE would also be considered a FIE, while the company established abroad and controlled by Chinese nationals may not be considered a FIE. The law goes so far as to state that if out of mainland China transaction results in the transfer of equity to the Actual Control of a Foreign Investor, that Foreign Investor would be deemed under the new FIL to be investing in mainland China.
Along with the new focus on looking to “Actual Control” of China entities, the draft law would increase the range of issues which would be subject to review on national security grounds. Under the law, and foreign investment which may potentially damage national security is subject to national security review. IN this regard, Actual Control will not be considered in determining which investments are subject to review. This leaves plenty of discretion for Chinese regulators to define damage to national security in a potentially very broad manner, creating uncertainty for potential foreign investors.
The Draft FIL will leave corporate governance of all foreign invested enterprises to comply with the general Company Law. This is in contrast to certain elements of the previously laws which dictated the numbers of directors some FIE’s must have and who may serve in such roles. The draft law would give currently established FIE’s a three year grace period to ensure they are in compliance with the Company Law.
Specifically as relates to Joint Ventures:
• EJV’s will be required to change the highest authority of the company from the board of directors to the shareholders’ meeting;
• an unincorporated CJV will be required to incorporate as a limited liability company or a foreign-invested partnership; The CJV will be required to revise the highest authority in the company to be in line with the Company law, or the Partnership Law;
• Profit distribution for a former EJY will be allowed to modified and redistributed as the Company Law does not contain the strict equity proportionality requirements of the Current EJV law.; and
• Henceforth it will be easier to sell shares of an EJV as consent to sell will only need to be received from more than half of the non-selling shareholders, rather than all the non-selling shareholders according to the EJV Law or CJV Law.
Overall it is likely that the proposed changes to the FIE establishment and governance regime will be a positive step toward increased efficiency in the establishment of a variety of company structures, and will simplify foreign investment. This continues a trend starting from March 2014 in which initial capital requirements for newly established companies, and capital contribution timelines were eliminated in favor of investor choice.
China is eager to simplify company registration processes as part of push to maintain high levels of foreign investment in the face of a gradually slowing domestic economy. Some potential foreign investors may be spurred to jump at current opportunities for simplified company establishment. However, foreign companies should maintain awareness of the myriad operational laws which domestic and foreign companies alike must deal with in China. Labor laws, product registrations and inspections, and intellectual property protection remain the main area’s our firm sees Foreign Companies encountering problems within China. Foreign Companies in China should take care to address these issues thoughtfully.
Published by admin on February 9th, 2015 tagged Uncategorized | Comment now »
February 09, 2015, Beijing – Lehman, Lee & Xu has been recognized by The World Bank for its valuable contribution to the Doing Business 2015: Going Beyond Efficiency annual report, published on October 29, 2014. The report, a World Bank Group flagship publication, is the 12th in a series of annual reports measuring the regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 189 economies.
Doing Business 2015: Going Beyond Efficiency finds that entrepreneurs in 123 economies saw improvements in their local regulatory framework last year. Between June 2013 and June 2014, the report, which measures 189 economies worldwide, documented 230 business reforms, with 145 reforms aimed at reducing the complexity and cost of complying with business regulation, and 85 reforms aimed at strengthening legal institutions – with Sub-Saharan Africa accounting for the largest number of such reforms.
Doing Business measures regulations affecting 11 areas of the life of a business. The report cites Chinese improvements in paying taxes and in ease of starting a business in raising China’s overall rank three points from 93 to 90, out of 189 countries surveyed. The report analyzed efficiency of regulations and procedures for starting and operating a business in Beijing and in Shanghai.
According to the report, “China made starting a business easier by eliminating both the minimum capital requirement and the requirement to obtain a capital verification report form an auditing firm.” This reform contributed to a 23 point rise from 151 in 2014 to 128 in 2015 in this metric.
The report also concludes that, “China made paying taxes easier for companies by enhancing the electronic system for filing and paying taxes and adopting new communication channels within its taxpayer service [system].” China rose 7 points in the Paying Taxes metric from 127 in 2014 to 120 in 2015.
Lehman, Lee and Xu has been pleased and honored to cooperate with the World Bank in analyzing changes in Chinese laws and regulations as they effect domestic and foreign invested business establishment in the country. Managing Partner, Mr. Edward Lehman has lived and worked in China for over 28 years and continues to be amazed at the swift pace of economic growth and legal reform. The firm looks forward to continued opportunities for cooperation with the World Bank as it prepares the next Doing Business report for 2016.
Published by admin on February 9th, 2015 tagged Uncategorized | Comment now »
February 04, 2015, Beijing – Mr. Edward Lehman spoke on CCTV’s Dialogue today concerning issues raised by the recent State Administration of Industry and Commerce (SAIC) regarding counterfeit goods found being sold on Alibaba’s Taobao.com e-commerce platform. A “whitepaper” released by the SAIC revealed the administration’s concern over the situation indicating that only 37.25% of goods surveyed on the portal were found to be authentic goods.
The high levels of counterfeit goods found on China’s e-commerce portal is primarily due to the difficulties of effectively enforcing anti-counterfeiting and Intellectual Property protection Laws on these online platforms. An effective regulation system will involve cooperation between government regulators, the e-commerce platforms, legitimate merchants, and consumers themselves.
- Government must issue and actively enforce clear laws setting forth appropriate penalties for those who manufacture counterfeits, those who sale counterfeits and any third party such as an e-commerce platform, that assists in the sale of counterfeit products.
- E-commerce platforms must enact rules and procedures to identify and shutdown merchants selling counterfeit goods via the online platform. Government penalties on the e-commerce platforms will create the incentive to undertake this obligation, which will be difficult and costly to implement.
- Legitimate businesses must actively monitor the marketplace, including e-commerce platforms to identify counterfeit goods being sold in the real world market and on e-commerce websites, and should actively report counterfeiters to the appropriate government agencies as well as directly to the e-commerce platform, and pursue appropriate legal remedies against counterfeiters.
- Consumers must value legitimate goods over counterfeit goods, and must take action to identify the legitimate goods in the marketplace, and to avoid and report merchants selling counterfeit goods to the e-commerce portal.
The discussion also touched on the recent lawsuit filed against Alibaba in the USA. The USA law suit alleges that Alibaba, Jack Ma, and other management personnel “Issued materially false and misleading statements regarding the soundness of the company’s business operations, the strength of its financial prospects, and concealing substantial ongoing regulatory scrutiny.”
Specifically, the complaint alleges Alibaba management failed to disclose to the public the allegations of counterfeit goods, and unfair and misleading business practices that were the topic of discussions between Alibaba and SAIC personnel two months before Alibaba’s IPO on the New York Stock Exchange.
Alibaba may face potential liability to those who recently purchased Alibaba stock in its IPO in the New York Stock Exchange if the allegations of the lawsuit are found by a USA court to have merit.
Published by admin on February 9th, 2015 tagged Uncategorized | Comment now »
On Oct. 28, 2014, Mr. Edward Lehman, Managing Partner of Lehman, Lee & Xu joined the CCTV program Dialogue as a guest speaker to discuss recent indications that The Shanghai Free Trade Zone (FTZ) will be a model in the establishment of similar zones throughout China. The Shanghai FTZ was established in 2013 with the goal of making it easier to do business and in particular easing currency exchange restrictions on the RMB. From Oct. 2013 to Sept 2014, the FTZ’s exports reportedly hit 196.5 billion Yuan and imports 551 billion Yuan.
The discussion included analysis and commentary on the current state of the Shanghai FTZ, whether it has been a success, Xi Jinping’s plan to “Plant the Seeds” of the Shanghai FTZ elsewhere within China, and the potential for these reforms to transform the broader Chinese economy.
Published by admin on October 30th, 2014 tagged Uncategorized | Comment now »
Mr. Edward Lehman, Managing Partner of Lehman, Lee & Xu participated on Oct. 24 as the noted guest speaker on the CCTV program Dialogue. The show came shortly after the important Fourth Plenum gathering of the Central Committee of China; a meeting of government and Party officials which sets broad policy outlines and goals for the coming years. The theme of the Forth Plenum was developing “Rule of Law” in China, and comes in the midst’s of a prolonged Anti-Corruption campaign against illegal activity and misbehavior among government officials.
Issues discussed on the Dialogue include China’s efforts to promote judicial independence and separate the courts from the influence of local officials; the importance of the Chinese Constitution and establishing a system of Constitutionalism; the ongoing effects of the continued crackdown on corruption as well as various ways in which increased “rule of law” may promote greater economic activity and growth in China.
Published by admin on October 30th, 2014 tagged Uncategorized | Comment now »
September 24, 2014, Beijing – Mr. Edward Lehman, Managing Partner of Lehman, Lee & Xu has been selected as a world leading Franchise lawyer, by Who’s Who Legal: Franchise 2014. Who’s Who Legal is an independent research organization which identifies leading attorneys in diverse fields around the world.
Research for the selection of winners was conducted independently by direct contact and interviews with leading corporate counsel around the world. Additional research into short listed candidates is conducted to select the best of the best from the most often mentioned attorneys. This honor cannot be bought. Only those nominated and confirmed to be pre-eminent franchise specializes will be selected.
Lehman, Lee & Xu is honored at Mr. Edward Lehman’s section. As a Top 3 Corporate Commercial Law Firm in China, Lehman, Lee & Xu has often assisted international franchising companies in establishing Franchise operations in mainland China. Mr. Edward Lehman has the knowledge and experience in working with the complicated Franchise laws in China, as well as the Chinese legal system as a whole. The firm’s team of Bilingual, English and Chinese speaking lawyers are experts in all areas of Chinese law.
Lehman Lee & Xu’s franchise lawyers provide legal and business advice covering every aspect of franchise law, from advising on a new start up franchise Company to an established company that wants to expand its franchise system. Services provided to developing franchise businesses include guidance on business organizations that will operate effectively in China, developing business plans, drafting franchise agreements, intellectual property protection and sub-franchising agreements.
Mr. Edward Lehman was among the founders of Lehman, Lee & Xu in 1992, and has worked as a lawyer “On the ground” in China for over 27 years. The firm was founded with the goals of developing excellence in the practice of law the founding of modern law practices in China. Lehman, Lee & Xu is recognized in China as a leader in the area of franchise law and was the first firm to translate and review China’s franchise law in 1997. The firm set up and is legal counsel to the China International Franchisor’s Association (CIFA), which provides a forum for foreign franchisors to discuss China legal and business issues.
Published by admin on September 24th, 2014 tagged Uncategorized | 2 Comments »
Infringements of IP rights attract the attention both of the Chinese governmental authorities and Chinese courts. While the governmental authorities are taking more actions to address online infringements of IP rights and more regulatory measures to restrict online trading in health-related items, Chinese courts are issuing progressive decisions to clarify the duty of care trading platforms have in responding to complaints by IP owners.
The following is a quick review of newly issued rules and regulations governing infringements of IP rights and the decisions in some important IP rights infringement cases.
Q: What’s different about the newly revised Trademark Law and The Implementing Rules?
A: According to the newly amended article 56(5) of The Trademark Law, a party which “intentionally …..provides facilitating conditions, thereby assisting another to infringe” will incur secondary liability for trademark infringements. Additionally, according to article 75 of the Implementing Rules, an online commodities trading platform may be subject to secondary liability as a result of these new laws.
The new provisions don’t introduce new obligations for a trade platform, although they clearly help to emphasis the legislature’s concerns over online trademark violations.
Q: What’s this I’ve heard about the China FDA’s newly drafted rules on Online Sales of Health-Related Products?
A: Pursuant to the draft rules, online sales of food, health food, cosmetics and medical equipment are governed by these regulations and the manufacturers and wholesalers of such products must apply for permits from the FDA before they market such products online.. Additionally, manufacturers and wholesalers will be prohibited from selling these products directly to customers.
Q: How will the new SAIC campaign effect online counterfeiting?
A: On June12, 2014 the State Administration for Industry and Commerce issued a notice emphasizing an enforcement campaign targeting online counterfeiting, especially on of electronic goods, children’s goods, auto parts, clothing, cosmetics and agricultural goods. The new regulations should make it easier for brand owners to enforce Intellectual Property, and stop online counterfeiting.
Q: What is the National Leading Group action plan?
A: Several days after the notice of SAIC, the National Leading Group for Fighting Intellectual Property Rights Infringements announced an online anti-counterfeiting action plan. Pursuant to this action plan, from June of this year (2014), agencies are to focus on the following objectives:
(1) Supervising key websites and e-commerce platforms;
(2) Shutting down illegal websites;
(3) Warning and educating business operators and consumers; and
(4) Encouraging information sharing and cooperation between sectors, regions and law enforcement agencies.
The action plan pays special attention to the following:
(1) Enhanced focus on cross-border enforcement initiatives to halt online infringements, with Customs, China Post and the Ministry of Public Security meant to work with each other and corresponding agencies outside China;
(2) Development of advanced technology to improve authorities’ enforcement capabilities and to create an effective e-commerce supervision network, tracking and tracing technologies, etc; and
(3) Improving internet governance, regulations and standards, including through the development of judicial interpretations on issues unique to online enforcement, such as evidence collection processes, and fixing gaps in relevant laws and regulations.
Q: What actions are being taken by the SIPO?
A: As of May, 2014 the State Intellectual Property Office commenced a five-month campaign to support complaints by patent owners in their efforts to have advertisements for infringing goods taken down by Chinese trade platforms. And the campaign is aimed at encouraging local intellectual property offices to assist by providing advice and instructions to trade platforms to take down offending ads where infringements are deemed clear, and also to mediate disputes where the existence of an infringement is less clear.
Q: Have recent court decisions effected how counterfeiting is handled on online trade platforms?
(1) E-Land (Shanghai) Clothing Trade LLC VS. Zhejiang Taobao Internet LLC (2013), lowers the evidentiary requirements for IP holders when the circumstances of an online sale make it clear that the goods are infringing an IP right.
(2) The “safe harbor” defense which permits trade platforms to avoid liability if they remove infringing offers may not be applied where the infringers are repeat offenders on that platform. As a result, platforms will need to do more than just delist infringing sales each time they pop up. Stronger actions will need to be taken, and may include termination of the infringer’s account.
(3) Zhejiang Pan-Asia E-commerce LLC VS. Beijing Baidu Internet LLC (2012). The court suggested that internet platforms be more more flexible in their requirements and should help verify information as needed to support take-down requests.
(4) Beijing Sanmianxiang Copyright Agency VS Beijing Qihoo Tech LLC (2014), Beijing Qike Fantasy IT LLC VS. Guangdong Aufei Cartoon Culture Inc (2014), Shanghai Wenqin Recreation LLC VS. Zhejiang Taobao Internet LLC (2012), Shanghai HeWeiTang Medical Devices LLC VS. Zhejiang Taobao Internet LLC (2012), Hangzhou Guxiu Clothing LLC VS. Zhejiang Taobao Internet LLC (2010).
All support the position that the standard to determine whether a trade platform bears “fault” includes not only actual knowledge, but also constructive knowledge.
Finally, the famous Chinese e-commerce platform Alibaba announced that it will be introducing a three-strike rule to strengthen the deterrence against repeat offenders on its Alibaba and Aliexpress platforms. Specifically, the first strike will be a warning letter, and the second will be removal of the listings for seven days, and the third will be closing the account of the infringer.
Published by admin on August 1st, 2014 tagged Uncategorized | 38 Comments »
There is no “Preliminary Hearing” in China criminal procedure. The Initial investigation is carried out by the prosecutor (Called The People’s Procuratorate in China), who will then decide if the case is deserving of criminal charges
After the prosecutor has concluded its investigation of a case, the facts should be clear and the evidence reliable and sufficient. It shall make a written recommendation for prosecution, which shall be transferred, together with the case file and evidence, to the People’s Procuratorate at the same level for examination and decision.
If it is discovered during investigation that a criminal suspect’s criminal responsibility should not have been investigated, the case shall be dismissed; if the criminal suspect is under arrest, he shall be released immediately and issued a release certificate, and the People’s Procuratorate which originally approved the arrest shall be notified.
The Prosecutor shall make a decision within one month on a case that a public security organ has transferred to it with a recommendation to initiate a prosecution; an extension of a half month may be allowed for major or complex cases.
When examining a case, the Prosecutor shall interrogate the criminal suspect and heed the opinions of the victim and of the persons entrusted by the criminal suspect and the victim (legal counsel).
In examining a case that requires additional investigation, the People’s Procuratorate may remand the case to a public security organ for supplementary investigation or conduct the investigation itself.
In cases where supplementary investigation is to be conducted, it shall be completed within one month. Supplementary investigation may be conducted twice at most. When supplementary investigation is completed and the case is transferred to the People’s Procuratorate, the time limit for examination and prosecution shall be recalculated by the People’s Procuratorate.
With respect to a case for which supplementary investigation has been conducted, if the People’s Procuratorate still believes that the evidence is insufficient and the case does not meet the conditions for initiation of a prosecution, the People’s Procuratorate may decide not to initiate a prosecution.
When a People’s Procuratorate considers that the facts of a criminal suspect’s crime have been ascertained, that the evidence is reliable and sufficient and that criminal responsibility should be investigated according to law, it shall make a decision to initiate a prosecution and shall, in accordance with the provisions for trial jurisdiction, initiate a public prosecution in a People’s Court.
A decision not to initiate a prosecution shall be announced publicly, and the decision shall, in written form, be delivered to the person who is not to be prosecuted. If the said person is in custody, he shall be released immediately.
If the People’s Procuratorate decides not to initiate a prosecution with respect to a case that involves a victim, it shall send the decision in writing to the victim.
If the victim refuses to accept the decision, he may, within seven days after receiving the written decision, present a petition to the People’s Procuratorate at the next higher level and request the latter to initiate a public prosecution.
If the People’s Procuratorate upholds the decision not to initiate a prosecution, the victim may bring a lawsuit to a People’s Court. The victim may also bring a lawsuit directly to a People’s Court without presenting a petition first.