IP Cases

o       Legal Time Limit to Apply to Cancel Trademark Right¡ªFive Year is a Invariable Term¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.6

o       Well-known Commodities do not only mean Commodities Well-known

  In the Mainland of China ¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..8

o       ¡°Existing Rights¡± Stated in Article 31 of Trademark Law does not include Trademark Right Itself¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­..9

o       Registering Phonics of Well-known Trademarks as Domain Name Constitutes Infringement¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­10

o       Principal will not Assume Liabilities if Construction Contractor Implements Patented Methods of the Third Party ¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­11

o       ¡°Colleting Evidence by Trap¡± Caused Great Waves Again¡­¡­¡­¡­¡­¡­..12

  Analysis of Laws and Cases

o       Analysis on Draft of ¡°Labor Contract Law¡±¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.14

o       Operational Opinions on Issues Arising from Joining between New Company Law and Foreign-related Enterprise Law¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­¡­.¡­¡­15

¡ì Haworth & Lexon News

¡§         Our Partner/ Attorney Tony Zhong and Lily Jiang were invited to Give a Lecture on EU Anti-dumping Laws in Anji, Zhejiang Province

As some furniture producers in Italy applied to EU to impose anti-dumping tax on the furniture exported from China, our partner/ attorney Mr. Tony Zhong and Ms. Lily Jiang were invited by Anji Foreign and Trade Cooperative Bureau to give a lecture in 18th April, 2006, where the general managers and financial managers were present from more than 20 furniture companies.

There were many anti-dumping litigations in EU recently against various Chinese industries, especially shoes, lighters, textiles etc. Once high anti dumping taxes are imposed, the huge market in EU shall close its door to Chinese enterprises. Many Chinese enterprises did not realize the importance of the issue and slacked off in defending. This weakness of Chinese enterprises had bad effects and caused chain reactions in other countries and areas and other industries.

China is considered by EU as a country that shall be given ¡°conditional market economy treatment¡±, which means that Chinese enterprises have to actively obtain this treatment if they want to have inside track in the litigation. This requires the enterprises to fill in market economy questionnaires.

Aim to exploring and solving the issues above, this lecture includes the importance of defense by enterprises, the strategies of defense, how to fill in anti-dumping questionnaires and what defending reasons can be used in anti-dumping cases.

¡ì Latest Laws and Regulations

¡§         Circular of the Supreme Court on Printing and Distributing Summary of the Second National Working Conference on Foreign-related Commercial and Maritime Trials

The Supreme Court printed and distributed ¡°Summary of the Second National Working Conference on Foreign-related Commercial and Maritime Trials¡± to courts of various levels on December 26, 2005, which requests the high courts to enforce accordingly.

The meeting summary gave guidance to application of laws in foreign related commercial and maritime trails. Illustrated in the summary are such issues as jurisdiction, litigants, service of legal documents, evidence, foreign-related commercial contracts, and judicial review of international commercial and maritime arbitration, foreign related enterprise disputes and disputes arising from delivery of cargo without presentation of original B/L. This meeting summary is important provision for the foreign related commercial and maritime trial practice.

 Next issue of our newsletter will give an explicit introduction of the meeting summary.

¡§         Notice on Handling Enterprise Financial Problems after the Company of PRC Law Came into Force

The Ministry of Finance promulgated on March 15, 2006 ¡°Notice on Handling Enterprise Financial Problems after the Company Law of PRC¡± Went into Force¡±, which went into effect on April 1, 2006.

The Notice regulated that the relevant regulations on capital evaluation should be followed if state-owned or state holding enterprises contribute capital or accept the capital of other enterprises in form of non-monetary capital, and they shall engage qualified capital evaluating units and professional personnel for the evaluation.

As the new Company Law does not request enterprises to draw public welfare fund, the Notice regulated on the public welfare fund balance or deficit existing before December 31, 2005. If the bonuses and welfare fund for staff of foreign invested enterprises are reserved with the approval by the board of directors, they shall be managed as debt.

The Notice has provisions on financial issues arising from joint stock company buying back its own stocks. Stocks bought back shall be handled as treasury stock before it was written off or transferred, and the expense for the buying back shall be transferred as treasury stock cost. The Notice also has provisions on handling financial issues in writing off or transferring.

If the company buys back its shares for implementing staff option plan, the shares bought by it shall not be more than 5% of the total amount and the needed capital shall not exceed the profit which can be distributed by the investors during that period.

The Notice provides that treasury stock shall not join the profit distribution and it shall be presented as allowance items of owner¡¯s rights by the joint stock company.

¡§         Interim Provisions on Strengthening Cooperation in Execution of Intellectual Property Law

The Ministry of Public Security and China Customs promulgated ¡°Interim Provisions on Enforcing Cooperation in Execution of Intellectual Property Law¡± on March 24, 2006, which began to be implemented on that day.

The Provisions set up legal basis for the cooperation performance by the public security authority and China Customs. In addition to joint conference held each year by Bureau of Investigation of Economic Crimes and Political Science and Law Department of the Customs, they may hold interim conferences in emergencies.

The Provisions request the customs to notify the public security organs when they find clues for important intellectual property cases. In principle, they shall notify the public security organs at the same level, which shall be in writing. The public security organs shall notify the Customs about the decision on whether to accept and investigate the case in writing. The public security organs may take the initiatives to request the Customs to give assistance.

¡§         Notice on Authorizing Provincial Commercial Administrative Department to Examine and Approve Some Foreign Invested Transportation Enterprises and Notice on Authorizing Provincial Commercial Administrative Department to Examine and Approve Some Foreign Invested Non-vessel-operating Enterprises

The Ministry of Commerce promulgated Notice on Authorizing Provincial Commercial Administrative Department to Examine and Approve Some Foreign Invested Transportation Enterprises and Notice on Authorizing Provincial Commercial Administrative Department to Examine and Approve Some Foreign Invested non-vessel-operating Enterprises on January 22, 2006, which went into effect on March 31, 2006.

According to the requirements of simplifying administrative approval proceedings by the State Council, the Notice transfers the power to examine and approve foreign invested transportation enterprises and non-vessel-operating enterprises to provincial commercial administrative departments and administrative committee of state economic and technology development zone. If there is any misconduct in approval, the Ministry of Commerce will publish the misconduct or withdraw the authorization, as the case may be. The Notice also requests the authorized departments and organs to have the equipment to be linked with Ministry of Commerce to grant certificates of foreign invested company, so as to make them under the supervision of the Ministry of Commerce.

¡§         Reply to Issues on Insurance Contract Disputes

China Insurance Regulatory Commission replied to Chongqing Higher People¡¯s Court for issues on insurance contract disputes on February 21, 2006.

In relation to the policy-holder¡¯s representation obligation, if the policy-holder does not fill in any item in the questionnaire asking for risk, the policy-holder shall be deemed as not having fulfilled the obligations. If there is any risk which is known or should be known to the policy-holder and which may affect the insurer to decide whether to accept the insurance or increase the insurance rate, the policy-holder shall inform the insurer even if the latter does not inquire on it. Otherwise the policy-holder shall assume the pre-contractual liability.

As to the insurance assessment, if a party has objection to the decision made by an insurance assessing company authorized by the other party, it belongs to the scope of fact recognition and should be investigated and decided by the court.

¡ì Intellectual Property Cases

¡§         Legal Time Limit to Apply to Cancel Trademark Right ¡ª Five Year is a Invariable Term

Beijing No. 1 Intermediate People¡¯s Court made the first ruling in the administrative case Changxing Food Co. Ltd vs. State Administration for Industry and Commerce Trademark Appraisal Committee on December 29, 2005, and the third party was Dongguan Meiwei Food Co., Ltd. The ruling affirmed the defendant¡¯s non-acceptance decision.

The plaintiff stated that he applied to the defendant to cancel the trademark of ¡°Dachu¡± held by the third party, but the defendant made a non-acceptance decision because the defendant considered the legal time limit for application had expired. The plaintiff requested the court to repeal the notice. The plaintiff said it had applied to the defendant according to the second provision of Article 41 of the Trademark Law of PRC on November 30, 2001. The defendant¡¯s action made the third party get the disputed trademark in an unfair way, which impaired the property rights of the plaintiff.

The defendant defended that the interruption of prescription raised by the plaintiff during the trademark administrative proceedings had no legal basis, so the defendant requested the court to affirm its decision.

The third party agreed with the defendant.

The court stated that one of the legal bases for application filed by the plaintiff on April 30, 2005 was Provision 2, Article 41 of the Trademark Law. According to that provision, if a trademark that has been registered violates the provisions of Article 13, Article 15, Article 16 and Article 31 of this Law, the owner or the interested persons of the trademark may, within 5 years from the day on which the trademark is registered, request the Trademark Review and Adjudication Board to revoke that registered trademark. The plaintiff considered ¡°five years¡± as a litigation period provided in General Principles of Civil Law, not a repelling rights period. The court thought, according to the current regulations and civil law theory, the object of litigation period should be the petition right of debt, and the object for repelling rights period should be the right of formation. The petition right to apply for revoking the trademark, which was a property, did not belong to petition right for debt, or right of formation, so the provisions on litigation period or repelling right period did not apply. The statement of the plaintiff that ¡°five years¡± was litigation period was in absence of legal basis, so the court would not support. This period was an invariable period since the Trademark Law did not clearly provide whether it could be suspended or broken off. In this case, the disputed trademark was registered on April 7, 2000 and the plaintiff applied on April 30, 2005, so the application by the plaintiff had exceeded the period provided in Provision 2, Article 41.

Therefore, it was correct for the defendant to make that decision, give explanation in the notice and send it to the plaintiff in writing. The court affirmed the decision.

¡§         Well-known Commodities did not only mean the Commodities Well-known in the Mainland of China

Tianjin Higher People¡¯s Court made the final decision on January 9, 2006 in the case Italian Ferrero Co., Ltd. (Plaintiff in the first instance) vs. Mengtesha Food Co., Ltd. (defendant in first trial) and Tianjin Economic and Technology Development Zone Zhengyuan Distribution Co., Ltd. regarding unfair competition dispute, which held that the infringement was established, because Mengtesha Co., Ltd. used the specific packages and decorations of Ferrero without its approval.

The court in the first instance thought FERRERO ROCHER chocolate had been famous in the mainland of China in recent years, and its package is common package, not specific, so it should not be protected.

The appellant stated, the first instance wrongly decided the time that FERRERO ROCHER became well-known in the mainland of China, and the fact that TRESOR DORE chocolate was famous in the mainland of China. The trial also wrongly held that the well-known extent in foreign countries did not extend to China. It ignored much evidence provided by FERRERO ROCHER. The judgment misunderstood the definition of ¡°the relevant public¡±, so it made a wrong decision that the packages and decorations of FERRERO ROCHR and TRESOR DORE was similar but not confusing.

The court held that well-known commodities provided in the Anti-competition Law of PRC meant the commodities sold in specific markets and well-known to the relevant public. The assessment of ¡°being well-known¡± should be based on its popularity in specific markets inside or outside China, and it should not be considered only to mean the commodities famous in China. According to the large amount of evidence provided by Ferrero Co., Ltd., it could be decided that before the sales of FERRERO ROCHER chocolates in the mainland of China, it had been famous to the relevant public and enjoyed high popularity. This product had been publicly sold in China since 1984, which had obvious visual characteristics and effects for its specific packages and decorations. Thereafter, FERRERO ROCHER chocolate had been sold in the Chinese market and became known to the public, so it should be recognized as well-known commodities. Therefore, the court supported the petition filed by the appellant and ruled that the defendant¡¯s action constituted unfair competition.

¡§         ¡°Existing Rights¡± Stated in Article 31 of Trademark Law does not include Trademark Right Itself

Beijing No.1 Intermediate People¡¯s Court made a ruling in the administrative case of Shenyang Weiwei Beauty Co. Ltd. vs. State Intellectual Property Office Patent Re-examination Board on December 23, 2005. The third party is Beijing Jingdu Weiwei Beauty Technology Development Co., Ltd. The ruling held that the trademarks used by the plaintiff and the third party were similar trademarks and used for similar services, so the decision made by the defendant should be repealed.

The plaintiff stated that Trademark Re-examination Board made the decision No. 0532 for the application filed by Shenyang Weiwei for trademark ¡°Jingdu Weiwei¡± No. 1651834, which held that the disputed trademark consisted of ¡°Jingdu Weiwei¡± and its spellings, and ¡°Jingdu¡± means the capital city. Article 31 of the Trademark Law was provided for the behavior of registering a trademark that previously had been used by others and had become influential, but not for the case that the applied trademark was the same as or similar to the registered trademark. At the same time, the evidence provided by Shenyang Weiwei was not enough to prove that its trademark had great influence before registering, so the Trademark Re-examination Board upheld the registration of the disputed trademark. The plaintiff stated that its previous name was Shenyang Weiwei Beauty Parlor, which used the name of its founder and designed the trademark ¡°Weiwei¡±, and was approved by the State Trademark Office in 1997. So the Plaintiff had had the exclusive right to use the trademark since then. The services provided by both the plaintiff and the third party were beauty and hairdressing. According to the provisions of the Trademark Law, any third party shall not get the registered trademark which had the same or similar figure, character or its composition on the same kind of services once the plaintiff got its trademark registered. So the Plaintiff applied to the people¡¯s court to repeal No. 0532 decision.

The defendant defended that Article 31 was provided for the case that someone applied in its own name to the trademark office with a trademark which was influential but not registered by unfair means. In this case, Article 31 should not be used. So the decision No. 0532 ascertained the facts clearly, applied the law correctly, and carried out the procedures lawfully. The defendant applied to the court to uphold the decision.

The court held that according to the legislative intention, the existing rights stated in Article 31 should include patent law, copyright law, enterprise name right, portrait right, using right of the packages and decorations of well-known commodities, but it did not include the trademark right itself. It was absent of fact or legal basis when the plaintiff applied to repeal the trademark on the ground that it infringed its existing trademark right, so the court would not support. Article 31 of the Trademark Law regulated on behaviors which registered a trademark that had been previously used by others and had influence to some extent but not registered by them. But the trademark in this case had been registered, so this article should not apply to this case. However, the disputed trademark was similar to that of the plaintiff, and was used in similar services. Therefore, it wrongly ascertained the fact when the defendant decided the registration of the trademark was in line with Article 28 of the Trademark Law. Therefore the court judged to repeal the decision No. 0532.

¡§         Registering Phonics of Well-known Trademarks as Domain Name Constitutes Infringement

Hunan Loudi Intermediate People¡¯s Court made the first ruling in the case Jinjiang Weilu Cloth-making Co., Ltd. vs. Mr. Zhejun Guo regarding infringement of trademark right by the domain name on February 22, 2006, which held that the defendant infringed the trademark right of the plaintiff.

The plaintiff stated that the defendant registered the domain www.weiluzhiyi.com for its sales on internet. At the same time, the defendant used the same trademark ¡°Weilu¡± as that of the plaintiff, which caused confusion between the products the plaintiff sold and those the defendant sold, affected the trademark owned by the plaintiff, seriously impaired the market plan and brand strategy of the plaintiff and led to misunderstanding and confusion among the customers.

The defendant had no objection to the request made by the plaintiff to log off the domain name or make it under custody of the plaintiff. He had nothing to do with the defendant¡¯s requirement to recognize ¡°Weilu¡± as a well-known trademark. However, the period since the defendant registered the domain name had not been long and there were no sales in reality, so it had not caused any impairment or loss to the plaintiff, and therefore the plaintiff¡¯s claim for compensation by the defendant should not be established.

The court held that in trying domain name dispute cases, could the court may recognize well-known trademarks according to the requirement made by the parties and the handling of the case. The trademark ¡°Weilu¡± held by the plaintiff could be recognized as a well-known trademark in China. The defendant registered the English domain name of ¡°www.weiluzhiyi.com¡± at China Internet Information Center for selling its clothes on the internet. The defendant also used the same trademark at an obvious place which was enough to mislead the relevant public to misunderstand that the domain name was owned by the plaintiff or there was some relationship with the plaintiff. And therefore confusions shall arise. Although the defendant had not realized any sales by that domain name, it could be held that he infringed the exclusive right of the plaintiff.

o       The Principal would not Assume Liabilities if Construction Contractor Implemented Patented Methods of the Third Party 

Guangdong Higher People¡¯s Court made the final ruling in the case Xiankui Li (The plaintiff in the first instance) vs. Gongbei Customs of the People¡¯s Republic of China (The defendant in the first instance) regarding infringement of patent right on January 11, 2006, with the third party Shenzhen Shenkan Foundational (Engineering) Co., Ltd., which did not hold that the behavior of Gongbei Customs constitutes infringement.

The appellant Xiankui Li stated that as the owner of the construction project, Gongbei Customs adopted and submit to the construction contractor the design in which the appellant had patent right, and the behavior of Gongbei Customs directly implement the patented technology of the appellant. At the same time, the appellee achieved unlawful interest from its direct or indirect use of the patented technology of others without approval, so its behavior constituted infringement.

The appellee Gongbei Customs thought it had nothing to do with the infringement. The design and construction of the foundation bracing project of the building of the Customs did not infringe the patent right of Xiankui Li.

The court held that Gongbei Customs contracted the design of the project to Shenzhen Geotechnical Institute and the construction to Jiangsu Company, which was not the case regulated under Provision 1 Article 11 of the Patent Law of ¡°making, using or selling the patented product, or using the patented process and using or selling the product directly obtained by the patented process¡±. What is more, Xiankui Li did not have evidence to prove that Gongbei Customs appoint or instruct Shenzhen Geotechnical Institute or Jiangsu Company to use the suspected infringed scheme. Therefore, whether the designer or construction contractor infringed the patent or take liability had no relations with Gongbei Customs. Therefore, the court rejected the petition of the appellant and ruled that the infringement of Gongbei Customs had not been established.

o        ¡°Colleting Evidence by Trap¡± Caused Great Waves Again 

After the second instance, the case Beijing Founder Group and Beijing Red Building Computer Science and Technology Institute (Hereinafter referred to as ¡°Red Building Institute¡±) vs. Beijing Gaoshu Tianli Technology Co., Ltd. (Hereinafter referred to as ¡°Gaoshu Tianli Company¡±) and Beijing Gaoshu Technology Co., Ltd. (Hereinafter referred to as ¡°Gaoshu Company¡±) regarding computer software copyright dispute raged again. The Supreme People¡¯s court made written judgment of trial and suspended the enforcement of the previous judgment.

Gaoshu Tianli Company and Gaoshu Company had once been the agents to sell Laser phototypesettings on behalf of Beijing Founder Group and Red Building Institute, which used Founder RIP software and Founder Wenhe software. Later the agency was terminated because of disputes between the parties but the two parties still sold laser phototypesettings in domestic markets respectively. In July 2001, the staff of Beijing Founder and Red Building Institute rented a house in Shijingshan District in their own name and bought laser phototypesettings from Gaoshu Tianli Company and Gaoshu Company. Gaoshu Tianli Company and Gaoshu Company installed for them and also installed piratic Founder RIP software and Founder Wenhe software in two computers as requested. They also provided CD which had been burnt by the above said software. During the purchasing process, in response to the invitation of Beijing Founder, the notary office carried out on-site notarization for the purchase and the installation and preserved the evidence.

The court in the first instance held that Beijing Founder Company and Red Building Institute spent a considerable amount of money to get the infringement evidence, which is called ¡°collecting evidence by trap¡±, which was not prohibited by laws. So it should be permitted. The court judged Gaoshu Tianli Company and Gaoshu Company stopped infringement immediately and publicly apologized to Beijing Founder and Red Building Institute, and made a compensation of RMB 600,000 Yuan for economic losses and RMB 407,250 Yuan for the expenses of collecting evidence.

Gaoshu Tianli Company and Gaoshu Company did not submit themselves to the judgment so they appealed to Beijing Higher People¡¯s Court, who had totally different opinion with the first instance court. Beijing Higher People¡¯s Court held that to ¡°collect evidence by trap¡± is not the only way to obtain evidence of infringement. This way violated the principle of fairness. Once it was used widely, it would impair the regular market order and violated the honesty and credibility principle and social morality. So the court did not ratify this means to collect evidence. Therefore, Beijing Higher People¡¯s Court judged Gaoshu Tianli Company and Gaoshu Company compensated RMB 130,000 Yuan to the appellees, which was the normal market price of one set of software. But the expenses for collecting evidence should be borne by Beijing Founder and Red Building Institute.

After the final judgment had been made Beijing Founder and Red Institute applied to the Supreme People¡¯s Court for re-trial of the case. The Supreme People¡¯s Court thought the application was in compliance with the applicable regulations, so it made a ruling to re-try this case. Therefore, the efficiency of ¡°collecting evidence by trap¡± remained suspicious again.

¡ì Analysis of Laws and Cases

¡§         Analysis on Draft of ¡°Labor Contract Law¡±

The called first draft regulating labor contract, the draft of ¡°Labor Contract Law¡± was submitted to the Nineteenth Conference of the Tenth Standing Committee of National People¡¯s Congress for its discussion on December 24, 2006. At present, this draft had been publicly announced and the public opinions would be welcome.

There are obvious changes as follows comparing the draft with the previous labor laws and regulations.

The application is much wider than the 1995 Labor Law and the most obvious one is to add people-run non-enterprise unit.

1995 Labor Contract does not have obvious regulation on not signing labor contract, but the draft clearly states that if the enterprise does not sign a written labor contract with the employees but there is a real labor relationship, it is deemed that the enterprise has a non-fixed term labor contract with the employee and the procedure of entering into a written contract should be made up, unless the employee makes different declaration of will clearly. This article is intended to encourage the enterprise to sign contracts with employees.

In relation to labor sending unit and labor accepting unit, 1995 Labor Law keeps silence on the problem, but article 12 and 24 of the draft not only require the labor sending unit to sign the contract with the employees, but require it to sign agreement with labor accepting unit and solve the liability sharing problem in the event that there is no such agreement.

The draft provides that only when the enterprise provides training expenses for the employees and the employees accept off-job professional skill training more than 6 months, then the enterprise and the employees may agree on an employment term and the damage if the labor violates the employment term agreement.  

The draft specifically provides on the competitive prohibition. The term for competitive prohibition shall not be more than 2 years and the enterprise shall give the employee compensation ¡°not less than the yearly income of the employee in that enterprise¡±. If the employee violates the competitive prohibition provision, it shall pay damage no ¡°more than 3 times of the compensation the enterprise pays to the employee in violation of its competitive prohibition obligation¡±.

To prevent the enterprise prolonging the trial use period for the purpose of saving cost, the draft provides that the trial use period shall only be agreed when the labor contract term is more than 3 months. It has different provisions for the trial use terms of non-technological position, technological position and highly professional technological position.

The draft states that the enterprise shall not require the employee to give guaranty or take in cash or objects from the employees in the name of guaranty, nor shall it detain the ID card or other certificate of the employees. The draft also provides for the liability the enterprise should take in such cases.

It is basically the same with the 1995 provision on issue that the enterprise terminates the contract with a notice 30 days in advance. But the draft additionally provides that in this case the enterprise may pay an amount equal to one month salary to terminate a non-fixed term labor contract.

There is a big change on economic compensation paid after the termination of labor contract, which provides that the enterprise shall give economic compensation to the employee.

The draft adds a new case that the employee may terminate the labor contract, namely the enterprise does not pay social insurance fee for the employees.

Whereas the new draft of Labor Contract Law has many differences with the present Labor Law, and the current performances by the companies are also different, so there are great disputes in theory. It can be presumed that the draft will be discussed after great amendments.

¡§         Operational Opinions on Issues Arising from Joining between New Company Law and Foreign-related Enterprise Law

The new Company Law and the relevant Regulations on Company Registration came into force from January 1, 2006, and there are many inconsistencies between the aforesaid laws and three foreign invested enterprise laws and their implementing regulations. However, the amendments of foreign invested enterprise laws belong to the legislative scope of the National People¡¯s Congress, so it can not be solved immediately.

Ministry of Commerce and State Administration of Industry and Commerce are said under negotiation to solve the inconsistencies. In Shanghai, the foreign investment approval authority and industry and commerce authority have the preliminary operational opinions as follows, which was effective on April 1, 2006.

1 Contribution of Registered Capital

1.1 The scope of contributed assets. According to the new Company Law and the relevant provisions, the shareholders may contribute with the assessable and transferable non-monetary assets, but they must not contribute with labor, credit, name of natural person, commercial reputation, franchising right or guaranteed assets. However, the approving authority is under further studying of operational measures on the debt or share contribution. In principle, the relevant organs in Shanghai have the authority to approve in the event that it is contributed with shares of domestic companies; as to the shares of foreign companies, it should be approved by the Ministry of Commerce.

1.2 Proportion of registered capital contributed by currency. The contributed currency shall not be less than 30% of the registered capital. According to the previous provisions, all of the registered capital can be contributed with objects and there was no requirement to the ratio of contribution made by currency. But the laws have not provided whether the first installment of contribution shall be made in currency.

1.3 The lowest registered capital. The regulations of foreign investment laws should be conformed to if there is any such provision; otherwise, it should be performed according to the Company Law.

1.4 Term of contribution. The Company Law should apply in this case. Not less than 20% of the registered capitals of foreign invested companies should be made within 3 months from the issuance date of the business licenses; and the remaining shall be made in the following 2 years. And the investment companies shall be fully contributed in 5 years.

2 Problems Involved in Examination and Approval

2.1 Capability of the subject.

In accordance with the requirements made by State Administration of Industry and Commerce, all the certificates of capability of the foreign subjects or foreign natural persons, submitted to the examination and registering authorities, shall be notarized by the notary office in that country (area) and attested by the Chinese embassy or consulate of set up in that country (area).

2.2 Earlier Examination and Approval.

If the contents of business scopes of foreign invested enterprises involve any earlier examination and approval, in principle, the setting up the enterprise should be approved after the earlier approval from the relevant authorities, subject to the laws and regulations provide otherwise. In addition, if the investment amount of the project exceeds 100,000,000 (for limited industries, it should be 50,000,000), it should be submitted to Shanghai Development and Reform Commission, which will transfer it to National Development and Reform Commission. The procedures to apply to the Foreign and Economic Commission will only be started after getting the approval from National Development and Reform Commission.

2.3 Time limit to apply for business license after approval.

Newly set-up Sino-foreign equity joint venture should carry out the procedure of registration within 90 days from the approval date and newly set up Sino-foreign cooperative venture should carry out the procedure of registration within 30 days. The time limit for carrying out changing procedure of the foreign invested enterprises is 30 days.

If the time limit expires, the applicant should submit to the previous approval authority for confirmation of the original certificate or apply for approval again.

3 Set up of branches.

3.1 The relevant regulations should be abided by if there are specific regulations on foreign investment for setting up of branches.

3.2 The set up of branches of entertainment industry, restaurant, consulting or production should be approved.

3.3 The branches in other industries will not need approving any more. The procedures of registration in Industry and Commerce departments can be carried out directly.

By the way, at present, the approval or registering authority has stopped approving or registering for offices of foreign invested enterprises.

4. Miscellaneous

4.1 Term of announcement for consolidation, separation and decreasing of registered capital.

According to the Company law, if a foreign invested enterprise has the aforesaid events, it should announce in newspaper for 30 days from the approval date, and it should apply for registration after 45 days from the announcement days.

4.2 Re-investment by foreign invested enterprise.

If the invested enterprises belong to limited industries or there are specific regulations on these industries, the foreign invested enterprises which intend to invest in these enterprises should get approvals from the relevant approving authorities.