"Haworth & Lexon Law Newsletter" is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, Intellectual property rights, International trade etc. with necessary comment. All the comments do not mean the legal opinion of our firm and the firm does not have any legal liability for such comment. Should you have any interest in any topics or any questions please feel free to contact the firm. You will be expected to have satisfactory response from the professional attorney of our firm.
News of Haworth & Lexon
Mr. Tony Zhong, partner of Haworth & Lexon is engaged by Shanghai Cultural Development Foundation as Expert of Inspection Supervision…………………………………………………2
Latest Laws and Regulations
§ News of Haworth & Lexon
Mr. Tony Zhong, partner of Haworth & Lexon is engaged by Shanghai Cultural Development Foundation as an expert of inspection & supervision, undertaking supervision and consultation for the granted projects of the Foundation. Shanghai Cultural Development Foundation was founded in November 1986 in response to the strategic development of culture in Shanghai. It was one of the first few regional organizations of this kind in China, and is now one of the largest and most influential foundations in Shanghai. Since September 2004, consigned by the government, the Foundation launched the project grants toward the whole society. Up to now, three rounds of project grants have been carried out, including 1078 applied projects, and 237 projects approved and granted. The total sum of the granting is nearly 120 million. To supervise he actual situation of implementation, the use of funds and expected effects, etc., the Foundation has established a consulting expert database. Experts with both high academic statuses in culture and art circle and rich experiences in operations of cultural market are in charge of analyzing and suggesting the inspecting and supervision proposal for the grants.
§Latest Laws and Regulations
The Regulations provides that in case a domestic company, enterprise or natural person merges a domestic company by a foreign company set up by it, which is its affiliate, it shall be approved by Ministry of Commerce. The foreign invested enterprise set up thereof shall not enjoy the preferential treatments, unless the foreign enterprise subscribes for the increased capital of the domestic company or it subscribes for the increased capital after merge, and the increased amount is more than 25% of the registered capital.
The regulations provides that when a foreign investor acquires a domestic enterprise and gets the control right, relating to an important industry, and if it will affect or may affect the economic safety of the state, or it leads to the actual control right transfer in a domestic who has a famous trademark or China time-honored brand, it shall apply to Ministry of Commerce. If the enterprise does not do so and it does have important effects on the economic safety of the state, the Ministry of Commerce may request it to eliminate such effect.
The Regulations allows the shareholders of the foreign companies to use the shares of the foreign companies or the increased shares as the payment in the acquisition. The Provisions has clear regulations on the documents and procedures for applications. Additionally, the Regulations has specific provisions on the merge of domestic companies by a kind of special purpose companies.
The Regulations put some provisions in “Tentative Regulations on Foreign Investors to Merge with Domestic Companies” together in a chapter called Antitrust Review, which defines the duty of review of the relevant authority in antitrust.
The Measures sets some, but not many limitations on the capacity of the purchasers and it allows the eligible natural persons and foreign investors to engage in the takeover. The Measures set out special review system for the takeover of domestic listed companies by foreign investors.
The Measures has a specific chapter on disclosure of entitlements. If the shares whose entitlements are held by the investors and its concerted parties reach 5% up to 20% of the issued shares of the listed company, they shall formulate a simplified report on the alteration of entitlements. If the shares whose entitlements are held by an investor and its concerted parties reach or exceed 20% but do not exceed 30% of the issued shares of the listed company, they shall formulate a detailed report. If the investors and the concerted parties are the majority shareholder or actual controllers, the company shall engage the financial accountants for their opinions. If the shares whose entitlements are held by the investors and its concerted parties reach 30% of the issued shares of the listed company, they shall engage the financial accountants for their opinions, report to the supervisory authorities and undertake their obligations to send out tender offer or apply to exemption for such obligations.
The provisions on tender offer are more specific. The Measures allows the investor, in a tender offer, sends out the tender offs to all of the shareholders for purchasing all or part of the shares they hold. The Measures allows the investors to use the currency, transferable securities and other lawful means provided by the laws and regulations in takeovers. But the matters which shall be set out in the takeover reports are more than ever, e.g. important transactions between the purchasers or any affiliated parties and the listed companies during the previous 24 months.
In the takeover by agreement, the Measures defines “transitional period”, and set up limitations on the behaviors of the purchasers and the listed companies during the transitional periods, e.g. the listed company shall not provide guaranty for the purchaser and its affiliates. The relevant parties to an agreement-based takeover shall apply to a securities depository and clearing institution for handling the formalities for temporary custody of the shares to be transferred, and can deposit the cash for the payment in the bank as designated by the securities depository and clearing institution.
The Measures regulates on the management buy out for the first time: if the purchaser is among the management or the staff of the listed company, then the independent directors of the listed companies shall engage the qualified independent financial accountants to analyze the financial status of the company and issue reports on the matters such as whether the conditions in the tender offer are fair.
While in comparison with the former “Measures of the Administration of Takeover Listed Companies”, it can be noticed that the circumstances while the tender offers may be exempted by China Securities Regulatory Committee are much less.
The Measures provides that the purchasers shall engage the qualified financial accountants to analyze the capacity and economic status of the purchaser and issue financial accountants reports to establish that the purchasers have the ability to perform the offers. The director boards of the listed companies shall engage independent financial accountants to analyze the financial status of the listed companies and issue reports on matters, e.g. whether the conditions of the tender offer are fair.
The Provisions relates to matters on the status and roles of the enterprises, agents and governments in the antidumping actions, procedures of the responding, communication and share of information and so on. It purposes to regulate work of responding to antidumping actions and protect the lawful rights and interests of the Chinese enterprises.
The Provisions provides obligations and duties of Ministry of Commerce, local administration of commerce, trade union and relevant enterprises. It establishes the status of the enterprises as subjects, and gives the enterprise a free right to choose ways of responding and get guidance and assistance. At the mean time, it provides that the enterprises shall regulate its exportation and protect exporting orders according to the laws and regulations.
The Provisions prohibits the lawyers and law firms from being engaged, who were the agency of the enterprises located in the country or area launching the investigation and applied to carry out investigations against the Chinese products within 3 years since the place of cases.?
The Notice provides that the direct selling enterprises which get the direct selling licenses shall complete the establishment of service networks and be examined by the authorities according to the service networks plans which have been submitted and approved, within 6 months from the issuance of the approval certificates. The examination results shall be submitted to the Ministry of Commerce for file. The direct selling enterprises shall not carry out direct selling activities until the examination and filing is completed.
The Notice requests the direct selling enterprises to carry out direct selling training according to the relevant regulations. Direct selling trainers shall carry out training according to Regulations on Direct Selling Administration and the relevant regulations.
The Notice points out that the direct selling enterprises shall disclose the relevant information to the public truly, correctly and completely, and submit it to the Ministry of Commerce and Administration of Industry and Commerce for file. It is forbidden that the direct selling enterprises make sensationalism and mislead the customers. The Notice states that changes of investors, shares, registered capital, calculation system of the remunerations of the promoters and market plan reports shall comply with “Regulations on Direct Selling Administration” and approved by the Ministry of Commerce.
The Notice provides that any bank shall not issue the bearer jointly signed value cards, which are issued and sold by the shops, and the shops provides invoices. The Notice also requests the banks deal with the cases of unlawful issuance of jointly signed value cards by themselves once they received this Notice.
China Banking Regulatory Commission and its dispatched offices will carry out special examinations on issuing jointly signed value cards by banks and commercial institutions, and take sanctions against such activities.
The subject of crime of dereliction of duty is “state functionaries”, who are the persons engaged in public services in the state organs, including the persons in organs of state power, organs of state administration, judicial organs and military organs of all levels. When any of those persons that perform public services in the organizations that exercise the state administrative power according to the laws and regulations, those persons that perform public services in the organizations that are entrusted by the state organs to exercise the power on behalf thereof or those persons that are not state functionaries but perform public services in the state organs exercises his authorities on behalf of a state organ, he shall be seemed as state functionaries. Those who perform public services in organs of China Republic Party or People’s Political Consultation above town level shall be seemed as state functionaries.
The Regulations defines what is severe infringement by setting up examples. For crimes of extorting confessions, collecting evidence by violence and maltreating the persons under custody, the conditions such as “severe circumstances such as hitting, binding and unlawfully using tools” and “by means of freezing, starving, solarizing and baking for a long time” are increased, which makes the activities not lead to some results, but have severe circumstances within the scope of crime liabilities.
The Regulations makes a narrower provision on losses. It increases criteria for direct losses and indirect losses of personal assets, and criteria for cumulative calculations, namely when the personal assets and public assets are both damaged, although any of them does not reach the case-filing criteria, it shall be subject to criminal liabilities if the cumulative amount reaches a certain standard.
The Regulations adds explanatory items for crimes of misuse of authorities, neglecting his duties and issuance of cutting licenses unlawfully. If the subjects of the cases do not conform to the conditions of crime of dereliction of duties and meet the requirements for general crime of dereliction of duties, it shall be dealt with according to the regulations on general crime of dereliction of duties.
The Supreme People’s Court of the PRC made the retrial judgment in the case of Beijing Founder Group Co., Ltd. (Hereinafter referred to as “Beijing Founder Company”) and Beijing Honglou Computer Scientific and Technological Research Institute (Hereinafter referred to as “Honglou Research 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 infringement of computer software copyright on August 7, 2006, which cancelled the previous final judgment and affirmed the main contents of the first instance judgment, confirming the infringement acts of the two defendants.
The applicants for retrial stated that the relevant evidence had proved that Gaoshu Tianli Company and Gaoshu Company had conducted frequently and widely infringement acts.? So it was wrong that the court of the second instance only judged that Gaoshu Tianli Company and Gaoshu Company paid a compensation of RMB 130,000 Yuan. Meanwhile, Beijing Founder Company’s methods of obtaining evidence had not violated the prohibitive provisions of laws and regulations, nor did it violate the fairness or constitute disruption of market order. So it was wrong that the court ruled Beijing Founder Company and Honglou Research Institute should bear the expenses of inspection and evidence collection.
The respondent of the application defended that the notarization by Beijing Guoxin notary office was conducted within its acknowledgement of the fact that the employees of Beijing Founder Company disguised themselves as the purchaser and intended to gain the “infringement” evidence through cheating. The record of the notarization was also incomplete, subjective and unfair. The means to obtain evidence by Beijing Founder Company was a devastation of legal orders, social morality and ordinary commercial order.
The Supreme People’s Court held that the notarization proved the fact that Gaoshu Tianli Company installed piratical Founder software. As Gaoshu Company and Gaoshu Tianli Company had no contrary proof to reject, the authenticity of the fact should be confirmed. The means of obtaining the notarized fact involved whether the evidence-obtaining method was illegal or not. If the evidence-obtaining method was illegal per se, the evidence could not be used to confirm the fact of the case, even if it was notarized. It was improper for the court of the second instance to deny the legitimacy of evidence-obtaining method by Beijing Foundation Company while confirming the fact of the case simply because the legal fact, which was obtained from such methods, had been notarized. As far as this case was concerned, Beijing Foundation Company, by notarizing the evidence-obtaining method, not only obtained the evidence of Gaoshu Tianli Company’s installation of piratical Foundation software, but also the evidence and clues of their sales of piratical software to other clients, which was a similar infringement. The purpose of Beijing Foundation Company was not improper, nor did it damage legal interest of the public and other people. Besides, the infringement of the computer software copyrights was characterized by its invisibility and difficulty of obtaining evidence, the adoption of this proof method was good to the settlement of this difficulty, and also deters such infringement acts. It was in conformity with the legal spirit of reinforcing the intellectual property right protection. In addition, the evidence-obtaining method adopted by Beijing Foundation Company did not infringe on the legal interest of Gaoshu Company and Gaoshu Tianli Company. So the evidence-obtaining method in this case was legitimate and effective and the proved fact shall be used to determine the case. The reasons of the applicants Beijing Foundation Company and Honglou Research Institute for retrial were just and should be supported.
The plaintiff stated that the decision’s recognition of Annex 1 and Annex 4 was wrong and does not come to the conclusion that the two sets of annexes collocated with column had been publicly used in July and August, 1999. In other words, the design shown in the contrastive document “raceway (small)” had not been sold in public before the date of application (August 17, 2000). Therefore, the patent No. 00324115.7 had not lost its originality.
The court held that Annex 1 was an effective judgment and could be used as the basis to confirm the fact of this case. Besides, Annex 4 was the evidence put forward by the plaintiff in another case for determining the invalidity of patent, namely the brochure of the product made in the plaintiff’s factory. The brochure was approved by the plaintiff, so its authenticity should be accepted. The two annexes could be integrated into an evidence chain to prove that the plaintiff had used the raceway (small), which was of the same design as the raceway (small) 438-XCB(X) shown in Annex 4, as the accessory to make folding screens and sold them publicly. Meanwhile, the court also held that only partial and subtle difference existed when comparing the Patent No. 00324115.7 with the section of the contrastive document, and the difference was not conspicuous enough and therefore could cause visual confusion among the common consumers. Only the part which would bring noticeable contrast with other parts in operation could be regarded as the critical part for determination. The side board in this patent does not have this feature and could not be held as the critical part. Therefore the claim of the plaintiff should not be supported by the court.
The plaintiff stated that Younaikesi Company was the exclusive right holder of the registered trademark “HYTORC”. The plaintiff acquired the authorization from this company and began to use the trademark “HYTORC” exclusively within the territory of China. The plaintiff was also entitled to appraise the authenticity of products using the trade mark of “HYTORC” and to handle trademark infringement cases. In October, 2005, the plaintiff found the defendant’s sale of counterfeit products with the trademark of “HYTORC” and used the trade mark for publicity, which infringed the legitimate interest of the plaintiff.
The defendant defended that the “HYTPRC” products it sold were imported from the manufacturing base of Younaikesi Company in Singapore through Shanghai Zijiang International Trading Company (Hereinafter referred to as “Zijiang Company”). They were not counterfeit products with the trade mark of “HYTORC”. Meanwhile, the products traded between the defendant and Zhuhai BJM Electric Co., Ltd. were not “HYTORC” products, so the defendant asked the court to reject the plaintiff’s claims.
The court held that the use of trademarks included the use on commodities, packages, containers and transactional documents or in the advertising, exhibition and other commercial activities. In the process of transaction with Fred Company, the defendant, in the knowledge of the fact that the hydraulic pumps they sold were not “HYTORC” products, still used the “HYTORC” trademark on transactional documents, on purchase orders, sales documents, VAT invoices, etc. Their acts should be deemed as using the registered trade mark of “HYTORC” on the same commodities, which infringed the exclusive use-right owned by the Plaintiff. At the same time, the defendant failed to prove that they had fulfilled the proper examination obligation towards the counterfeit products they sold with the trademark of “HTTORC” and that they acquired the products through legal means and could tell who the supplier was. The defendant should bear civil liabilities for sale of counterfeit “HYTORC” products.
The plaintiff stated that the content of the investigation record held in the decision No. 7478 could not elicit the fact that “Shenzhen Newspapers and Periodicals Retailing Company purchased a number of Girlfriend journals of Issue 6, 1999 (referred to as Annex 3) on May 12, 1999 and were to sell them to the public before June 1, 1999”. It was wrong for the Patent Reexamination Board to hold that “as long as the Girlfriend journals of Issue 6 were sent, from the printing department, to the Retail Company of Newspapers and Periodicals, they are in an open-end state.” Therefore, the plaintiff requested the People’s court to repeal the judgment and maintain the effectiveness of the patent.
The court held that although Shenzhen Newspapers and Periodicals Retail Company purchased a number of Girlfriend journals of Issue 6, 1999 on May 12, 1999, there was not adequate evidence to prove the advanced publication of these journals, and the time of publication should be held as June 1, when these journals were not accessible to the public through ordinary channels. As a result, the products of automatic clothes rack of the Good-wife Company published on the front cover of this journal was not in an open-end state before May 13, 1999, the application date of the patent in the case. So the patent in this case was original.
The plaintiff stated that he signed an “Actor & Staff Contract” with the “The House of Flying Daggers” group of New Picture Distribution on November 20, 2003, where it was agreed that the group engaged the plaintiff to undertake the job of action cutter and the contract was fulfilled. However, in the captions at the end of the film, the role of the plaintiff was “assistant action cutter”, instead of “the action cutter” as written in the contract, which violated the contract and invaded the authorship right of the plaintiff.
The defendant Beijing New Picture Distribution and Talents Group defended that the action cutting was the work scope, not a means of authorship. The name of Yang Qin had been shown at the end of the film of The House of Flying Daggers as an assistant action cutter. No infringement existed on the authorship right in this case. Therefore, the claims of Yang Qin should be rejected.
The court held that the whole copyright of the film was owned by the producer, but the director and the photographer, etc also enjoyed respective authorship right. In this case, the plaintiff claimed that the role of action cutter was grounded on the content in the “Actor & Staff Contract” signed with Beijing New Picture Distribution, in which “Yang Qin shall take the job of action cutter”. However, this agreement was about the work scope, rather than the means of authorship in the copyright law. So it could not be taken as the basis of confirming the means showing authorship, nor could it judge the creativity and non-creativity of the job pertaining to film cutting simply through the appellation. Meanwhile, through the litigant’s statement, no conclusion could be made that there were material differences between the job of action cutter engaged by the plaintiff and the role of assistant action cutter shown in the film of“The House of Flying Daggers”. So the court held that there was nothing wrong with the defendant showing the plaintiff as the assistant action cutter in the film of“The House of Flying Daggers”.
§ Analysis of Cases
The Shanghai Higher People’s Court made the final ruling in the case China Ocean Shipping Agency Lianyungang (hereinafter referred to as “COSA”) vs. Lianyungang Port Authority, Lianyungang Gangming Industry Co., Ltd (Hereinafter referred to as “Gangming Industry”) and Lianyungang Gangming Trading Co., Ltd (hereinafter referred to as “Gangming Trading”) regarding infringement dispute of releasing cargo without collecting original B/L on December 15, 2004.
In September, Guangzhou Huangpu Dongyue Aluminum Factory (hereinafter referred to as “Dongyue”) entrusted China Construction Import & Export Company to import 10,000 ton alumina from Australia. After that, Dongyue entered into a sales agreement with Gangming Industry, assigning the cargo to Gangming Industry. On November 19, Dongyue entrusted Gangming Industry to get the D/O from the COSA, who was the port agency of ship “Matai”, by issuing letter of guarantee, and promised to submit original B/L before November 23. Otherwise, it should assume all the liabilities. On that day, Gangming Trading negotiated with COSA to borrow the D/O with a reason that Dongyue needed the B/L for applying to customs, and it represented to take all the liabilities thereof. On November 20, 2001, COSA issued the D/O involved in this case to Gangming Trading, whose bottom copy showed that the consignee was China Nonferrous Metals Industry & Trading (Group) Company. Then Gangming Trading submitted the D/O to Gangming Industry for its possession.
From November 19, 2001 to December 4, 2001, Gangming Industry collected 4,700 ton alumina from Lianyungang Port Authority without providing D/O, which was borrowed by Lianyungang Port Authority from persons other than involved in the case according to the letter of guarantee submitted by Gangming Industry. On December 5, 2001, the disputed D/O passed the examination of the customs, and the consignee on the D/O was Dongyue written by hand and the postil under it was “Only delivering the goods to the consignee according to the original B/L issued by our company”. Gangming Industry collected the remaining alumina from Lianyungang Port Authority with it and the related customs charges and the duties were paid in the name of Dongyue. Because Gangming Industry and Gangming Trading had never gotten the original B/L, COSA took the liability of compensating the original B/L holder and got the right or recourse after paying the compensation.
Shanghai Maritime Court held that, Lianyungang Port Authority had no fault to deliver the cargos to the D/O holder against the D/O issued by COSA, subject to the approval of the customs. Lianyungang Port Authority had delivered part of the cargo before the customs approved, but it took back the disputed B/L thereafter. So the economic losses suffered by COSA had no causal relation with the aforesaid behavior. The reasons for requesting Lianyungang Port Authority to assume the liabilities were not sufficient. Gangming Industry and Gangming Trading negotiated to borrow the B/L and handle the formalities to take delivery with a false reason, so they shall take joint liabilities. It was ruled that Gangming Industry and Gangming Trading should jointly compensate COSA RMB 5,336,174 .20. After the first instance judgment had been given, COSA appealed. Shanghai Higher People’s Court held that the trial of first instance had ascertained the facts clearly and applied the laws correctly. So the appeal was rejected.
The essential arguments in this case were that the legal status of the business operator of the port in carriage of goods by sea and its obligation to review the documents, which have been disputed theoretically and practically. Therefore, the comparatively uniform judicial opinions may be used in the future trial of similar cases for reference. So it was published in the bulletin of Supreme People’s Court.
One?? Legal Status of the operator of the port in carriage of goods by sea
Firstly, in the carriage of goods by sea, the goods loaded and unloaded at the port have not been completed of application to customs and relevant inspections. So it is not definitive whether it is allowed to bring into China and what procedures it needs to handle. The business operator of port is entrusted by the customs and other administrative institutions to keep and store the goods, which is not a simple civil legal behavior. Secondly, the B/L used as bill of document in the carriage of goods by sea is a negotiable certificate of property. Except the bearer B/L, the negotiation of the B/L normally leads to the change of the consignee, but the business operator of the port can not control such changes since it is not a party to the transportation contract. Therefore, in practice, the operator usually ascertains the consignee according to the B/L presented by the carrier, which leads to an entrusted storage relationship between the operator and the carrier. Thirdly, the party who enters into a port operation contract with the port operator usually is not the holder of the D/O, namely the lawful consignee of the goods. In lots of carriage of bulk cargo by sea, the agencies of the consignees or buyer may sign such contracts. If the operator delivers the cargo according to the instructions of the entrusting party under the port operation contract relationship, the interests of the holders of B/L or D/O will be infringed directly. Generally, the methods of load and unload, storage, term and relevant expenses may be agreed in the port operation contracts, which shall not affect the operator to release the goods against the D/O. Therefore, in this case, it was improper for Lianyungang Port Authority to deliver part of the goods to Gangming Industry before it took back the B/L.
Two?? Obligation of the Operator to Review the identity of the Consignee and the Items Recorded On the B/L?
During the carriage of goods by sea, the consignee is not appointed by the entrusting party, and the carrier who issues the B/L usually only has fictional storage relationship. At the same time, D/O is acquired from the carrier or its agency by the consignee by original B/L, which is nonnegotiable, sole and exclusive, so only the person who holds the D/O may get the goods. Therefore, if the person who receives the goods proves that he gets the D/O in a lawful way, the operator shall not assume the obligation to examine the identity of him. The review obligation of the operator can only be caused by the entrusted custody relationship. If the parties do not have such agreement, the operator only has a common obligation to be cautious, which means it is not requested to do substantial review on the trueness of the recorded items so long as the D/O is lawful apparently.
In this case, since Gangming Industry requested to pick up the goods with the lawfully acquired D/O, Lianyungang Port Authority should not he held liable for the trueness of the items of D/O or the review of the identity, since there is no evidence to prove that the personnel of the Lianyungang Port Authority should have known that there had been any discrepancy between the bottom copy and the retrieving goods copy. The claim of COSA should not be supported since it applied with the reason that the review of Lianyungang Port Authority was not strict and it was wrong not to deliver the goods to consignee recorded on the D/O.
Three? Legal Liabilities of the Port Operator for Delivering Goods without Collecting Original B/L
The activities of storage, custody and delivery by the operator are performance of its supervision duty as an administrative authority and performance of storage obligations entrusted by the carrier. Therefore, if the operator does not deliver the goods against D/O, it violates the relevant regulations, and it shall take the liability for breach of contract. In this case, Lianyungang Port Authority delivered the goods to Gangming Industry without retrieving the D/O, which belonged to such activities making delivery without taking back D/O. However, Lianyungang Port Authority retrieved the D/O thereafter, whose behavior did not have directly consequential relations with the compensation liability assumed by COSA. Therefore, Lianyungang Port Authority did not need to take civil liability for its breach of contract.
(This case was published in the bulletin of Supreme People’s Court and has a guiding effect.)