China Law Insight : China Business and Intellectual Property Lawyers & Attorneys : King & Wood Law Firm : IP, Arbitration, Litigation, Securities, Foreign Investment

China has issued a raft of measures aimed at moulding its auto industry to meet both the challenges posed by the global economic crisis and possibly even use the crisis to achieve long held strategic government goals. The short term goal appears to be to boost domestic consumption of cars and thereby stimulate the economy. The longer term goals have been previously enunciated in NDRC auto policy, namely consolidate the industry, build some national auto champions and build quality “green” cars. According to The New York Times, China is aiming to become a global leader in manufacturing electric cars.

Xu Ping, Partner, FDI

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The Ministry of Commerce of the People’s Republic of China (“MOFCOM”) made the decision to prohibit the proposed acquisition of China Huiyuan Juice Group Limited by the Coca-Cola Company (the “Transaction”) under Article 28 of the Anti-Monopoly Law of People’s Republic of China (the “AML’). We believe the following three negative influences on competition were the primary considerations taken into account by MOFCOM:

Susan Ning, Partner, International Trade

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Often, when Chinese lawyers deal with foreign-related cases they see the term "attorney-client privilege" in the foreign lawyer issued legal opinions and memorandums. Furthermore, many foreign lawyers would like to know if their communication with the Chinese lawyers they work with is provided the same amount of protection as their communication with their clients.

Black's Law Dictionary defines attorney-client privilege as a client's right to refuse to disclose, and to prevent anyone else from disclosing, confidential communications between him or her and his or her attorney. This privilege prevents attorneys from disclosing their communications with their clients. Furthermore, this protection prevents any other party, including, the attorney from using any information that could be considered "attorney-client privilege" as evidence in a litigation. However, there are exceptions. For example, an attorney has a duty to disclose privileged information if the disclosure is related to criminal activities. The attorney-client privilege was established to encourage honest communication between an attorney and his or her clients. This opportunity for honest communication will reduce the chance that a client will intentionally or unintentionally engage in an illegal activity due to ineffective communication with his or her attorney.

Gui Hongxia and  Li Xiang of King & Wood's Dispute Resolution Group

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According to Chinese media reports last year, six children died and nearly 300,000 others were sickened after consuming milk powder containing melamine, a toxic industrial chemical that was added to show a higher protein level in the milk powder. The melamine contamination of dairy products was discovered to be widespread. Concerns about food safety have surfaced in China long before the melamine dairy scare: sub-standard baby milk produced in Anhui, Longkou noodles containing lead from Shandong, fake alcohol in Guangdong, soy sauce made from human hair (still not clear how that works in practice), eggs with melamine – this list is long and a cause of grave concern to Chinese consumers.

This unrest in relation to food safety led to an Asian Development Bank policy note being delivered to the PRC State Council in 2007. The policy note was the result of a technical assistance project between the PRC State Food and Drug Administration and the World Health Organization. The note was generally positive and commented favorably on the great efforts made by the PRC government to improve food safety. Despite some progress, problems remained – in particular in respect of inter-agency coordination and the lack of a framework law in respect of food safety. The latest milk powder problem may have been the catalyst that further sped up the introduction of the new law.

As such, the PRC Food Safety Law was approved by the National People's Congress (NPC) on February 28, 2009, and provides a legal basis for the government to strengthen food safety control "from the production line to the dining table."
 

The law which goes into effect on June 1, 2009, consolidates hundreds of regulations and standards covering China’s 500,000 food-processing companies and promises tougher penalties for producers of tainted products.

Mark Schaub, Partner, FDI

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On Monday 23 February 2009, the Tribunal de Grande Instance of Paris in France heard an urgent application by a team of Chinese lawyers for an injunction to prevent the auction by Christie’s of two controversial ancient Chinese relics. It was not in dispute that the two bronze sculptures, one of a rat’s head and another of a rabbit’s head, had been looted by Anglo-French troops from the Old Summer Palace in Beijing during the Second Opium War in 1860 and had until recently been part of the collection of the late Yves Saint Laurent. The Tribunal nevertheless rejected the application. Subsequently, on Wednesday 25 February 2009, the sculptures were auctioned off for 14 million euros each to then-anonymous telephone bidders. The controversy is ongoing.
This incident demonstrates the legal difficulties faced by China generally in the retrieval of similarly looted, stolen or otherwise illicitly exported cultural artifacts from abroad. At present, China adopts the following three approaches in respect of such items:
 

1. repurchasing the items;
 

2. seeking the return of the items as gifts;
 

3. seeking the return of the items through diplomatic maneuvers or through the efforts of non-governmental organizations.
 

This appears to be the first time that China has attempted to seek repatriation of looted cultural property by means of litigation.
 

Ariel Ye, Dong Ping, and Yang Weiguo of King & Wood's Cross-border Dispute Resolution Practice

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Australia has had a range of general and sector-specific privacy laws for 20 years. At the Federal level, the Privacy Act 1988 (Cth) initially regulated the way in which Commonwealth agencies dealt with the personal information of Australians. The scope of the Privacy Act was expanded to also cover the handling of individuals' credit information and, more broadly in 2001, to cover all private sector organisations and the way in which they collect, use and disclose personal information. Individual States and Territories of Australia also have specific privacy laws that regulate the way State-based agencies deal with personal information, and laws relating to privacy are also found in a variety of legislative contexts.

The result is that Australia has a myriad of privacy-related laws at different levels of Australian Government covering an often overlapping range of issues. This situation was one of the drivers behind a substantive review by the Australian Law Reform Commission (ALRC) into Australia's privacy laws.
 

By Michelle Rowland, Sarah Alderson of the Communications & Technology Group of Gilbert + Tobin.
 

Kalley Chen, Dai Chen and Xu Zifeng, of King & Wood.

King & Wood established a strategic alliance with Gilbert + Tobin in November 2007.

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Under the United Nation's Framework Convention on Climate Change (UNFCCC), “developed country Parties should provide new and additional financial resources to support the transfer of technology and take all practical steps to promote, facilitate and finance the transfer of, or access to, environmentally sound technologies and know how to developing country Parties.” However, a UNFCCC report revealed that a large portion of developing nations do not take advantage of CDM projects to import technology.
 

As long as technology transfer from developed countries is a convenient low-cost means for China to reduce GHG emissions, why doesn't China have more CDM projects that involve technology transfer? [continue reading to see our analysis]
 

Wang Rui, Partner, International Trade

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At first glance, the goals of intellectual property law and competition law might appear to conflict. IPR owners are granted statutory rights to control access and charge monopoly rents to others for use of their rights. IPR owners may also use terms of IPR licences to regulate downstream activities of their distributors, such as imposing exclusivity, territorial restraints and price restraints. Competition law, on the other hand, is directed at curtailing such market power which may prove harmful to economic welfare.

 However, IP laws and competition laws can also be seen as complementary rather than antagonistic. Both laws share the same fundamental goals of enhancing consumer welfare and promoting innovation. According to the United States (US) Department of Justice (DoJ) and the Federal Trade Commission (FTC) :

 “…[competition] laws protect robust competition in the marketplace, while intellectual property laws protect the ability to earn a return on the investments necessary to innovate. Both spur competition among rivals to be the first to enter the marketplace with a desirable technology, product, or service.”

 While an IPR may confer a “legal monopoly” over a product, process or work, it does not necessarily confer an “economic monopoly”. Further, while an IP license may well confer restraints on licensees (such as territorial restraints) with respect to a specific product, process or work, there may be sufficient actual or potential close substitutes that constrain the exercise of market power by the IPR owner.

 Despite the view that the goals of IP and competition laws are complementary, difficult questions can arise when competition law is applied to specific activities involving IPRs.

A. China's AML:  Article 55

 The IPR provision in the AML is set out in Article 55:

“This law shall not apply to the conduct of operators to exercise their intellectual property rights in accordance with the laws and relevant administrative regulations on intellectual property rights; however, this law shall apply to the conduct of operators to eliminate or restrict market competition by abusing their intellectual property rights.”

 Article 55 exempts conduct which amounts to an exercise of IPRs so long as:  those IPRs are exercised in accordance with the provisions of laws and administrative regulations relating to IPRs; and the conduct does not amount to an abuse of IPRs by eliminating or restricting competition.

 The Article 55 approach is very similar to the approaches in Australia and Canada. In both these countries, there has been debate about when the IPR owner is only fairly exercising their inherent rights in the IPR or is trying to achieve something more which has an anti-competitive outcome. Experiences in both countries show that this dividing line can be difficult to draw.

* Angie Ng is a graduate in the Competition and Regulatory Group at Gilbert + Tobin in Sydney, Australia.

** Ding Liang is of counsel for King & Wood's International Trade Practice in Beijing.

*** Peter Waters is a partner in the Competition and Regulatory Group at Gilbert + Tobin in Sydney, Australia.

King & Wood established a strategic alliance with Gilbert + Tobin in November 2007.
 

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1.Introduction

On 6 June 2008, the Government of the Hong Kong Special Administrative Region (the “HKSAR”) announced the “Arrangements for the Implementation of Clean Development Mechanism (“CDM”) Projects in the Hong Kong Special Administrative Region” (the “Implementation Arrangements”). The Implementation Arrangements have been developed following consultations between the National Development and Reform Commission (“NDRC”) of China and the Environment Protection Department (“EPD”) of the HKSAR. The Implementation Arrangements sets out the specific procedures for Hong Kong companies to conduct CDM projects in Hong Kong...

 By Andrew Tan 

 Partner   Arculli Fong & Ng   (in association with King & Wood, PRC Lawyers)

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As consideration for obtaining Olympic marketing rights, the official sponsors have contributed considerable funds and goods to the Olympic Games.  The strong support of sponsors is crucial to the successful staging of every edition of the Olympic Games.  As such, the International Olympic Committee (“IOC”) views the protection of the sponsors’ rights as an important aspect in the preparation and organization of the Olympic Games.  The Government of the Beijing Municipality and Beijing Organizing Committee for the Games of the XXIX Olympiad (“BOCOG”) also solemnly have covenanted in the Host City Contract and the Marketing Plan that they will take all necessary measures to prevent and combat ambush marketing in any form...

By Wang Rui, Partner, King & Wood’s Olympic Group

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Recent issues regarding Chinese products have focused on the gaps remaining in the law.  However, the gaps are quickly closing.  Product safety has become a top priority for China. Chinese authorities have streamlined the legislative process for product recalls at all levels...

By Li Yongmei King & Wood’s Domestic Litigation & Arbitration Practice

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Unclear provisions have frequently caused liability disputes for late payment damages. Clearly a non-breaching party may claim damages for late payment. Yet, opposing parties have often advanced differing methods for calculating damages depending on which method provides a more favorable outcome. In the past, courts also proposed differing principles for deciding cases. This lack of uniformity often led to confusion.


By Cheng Shigang, Associate in King & Wood's Domestic Litigation and Arbitration Group.   

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Two sets of new measures have been issued in June 2008 (namely Measures for the Administration of Prohibited and Restricted Technology Import and Measures for the Administration of Import and Export Contracts Registration) which are likely to have a material, practical affect upon technology licenses and transfers to and from China.

The measures are a mix of devolution (i.e. the regulations delegate responsibility down to regional Bureaux of Commerce); increased regulation and supervision on the one hand but relaxation in other regards.

By Mark Schaub, Partner

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A non-compete clause prohibits one party from competing in the same type of business as the other party for a specified period. The non-compete clause is usually termed "covenant not to compete", "restrictive covenant", or "non-compete clause" and are treated with suspicion by the Anti-Monopoly Enforcement Agency.

As China is a fairly young competition regime, there are few competition precedent cases regarding the validity of non-compete clauses. Further, we note that there are no guidelines or regulations accompanying the Anti-Monopoly Law (the "AML"). However, an agreement containing a non-compete clause would fall within the scope of a monopoly agreement and so would be subject to the AML.

 
According to Article 13 of the AML, monopoly agreements are agreements, decisions or some concert of action that eliminates or restricts competition. If an agreement reached between two or more operators containing a non-compete clause has the object or effect of eliminating or restricting competition, then it will be considered a monopoly agreement under the AML.

It is apparent that non-compete clauses protect the interests of parties in different types of agreement. Since these clauses involve the balancing of interests between promoting competition and protecting the interests of suppliers, retailers and investors, their interpretation and application can be quite complex. It will be interesting to see how the interplay between non-compete clauses and the AML unfolds.

* Ding Liang is of counsel to King & Wood's International Trade Group in Beijing.

CONTINUE READING... 

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