"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
Latest Laws and Regulations
§ News of Haworth & Lexon
§Latest Laws and Regulations
The Partnership Enterprise Law adds the limited partnership as a new form of partnership enterprise and makes particular provisions to regulate a kind of professional service institutions as a special general partnership enterprise.
The Partnership Enterprise Law allows natural persons, legal entities and other entities to be partners in two kinds of partnership enterprises. The solely state-funded enterprises, state-owned firms, listed companies and public-welfare-oriented institutions and social societies are excluded to be the general partners in general partnership enterprises.
The Partnership Enterprise Law provides that the taxes on income from business operation and any other income shall be paid by partners respectively.
The special general partnership enterprise is a professional service institution providing compensated services to clients by its professional knowledge and skills. In special general partnership enterprise, one or more partners incurs debts to the enterprise due to his willful misconduct or gross negligence during practice shall burden unlimited liability or unlimited joint liability, and other partners are liable for the debts to the extent of the share of property held by them.? Debts caused by partners due to circumstances other than those mentioned above and other debts of enterprise shall be borne by all partners with unlimited joint liability.? The special general partnership enterprise shall set up a professional risk fund for payment of the debts incurred by partners during practice. And professional insurance shall also be undertaken.
The Partnership Enterprise Law has a specific chapter on limited partnership enterprise.? The limited partnership enterprise shall be established by 2-50 partners, at least one partner of whom shall be a general partner. Limited partners shall not make contributions by labor. The enterprise shall only be managed by the general partner. If a third party has reason to believe that the limited partner is a general partner and trades with him, the latter shall be liable for the transaction as the general partners.
The Interim Measures provides that the assignment of tradable shares of listed companies by agreement shall be conducted in the securities exchanges, and any unlawful transaction or assignment outside the exchange is forbidden. If it relates to one of the following cases, it may be assigned by undertaking the procedures on assignment of tradable shares through securities exchanges and depository and clearing companies: (1) share assignment which relates to acquisition of listed companies and change of shareholders’ interests; (2) there is actual control relationship between the parties to the assignment, or they are controlled by the same controller; (3) share assignment resulted from investment to listed companies by foreign investors.
The Interim Measures provides the documents which have to be submitted to the securities exchanges and depository and clearing companies when applying to inquiry the holding conditions of the purposed transferred shares, on confirmation of legality of the share assignments and when applying for the registration of share transfer.
The Interim Measures provides that within 3 months after the registration of assignment, the transferee shall not apply to the securities exchanges or depository and clearing company for assignment of those shares.
The Notice forbids the domestic telecommunication companies to lease, transfer or sell the telecommunication business license, by whatever means, to foreign investors, nor shall they provide such conditions as resources, premises or equipment to foreign investors. The offshore listing of domestic telecommunication companies shall be examined and approved by the Ministry for Information Industry of the State Council.?
What needs to be mentioned is that the Notice clearly requires that the operators of value-added telecommunication business (including the shareholders of the company) hold the domain names and registered trademark lawfully. The premises and equipment necessary for application for telecommunication business shall be set up within what is covered by the business license and comply with the value-added telecommunication business approved by the operators.
“The date when a labor dispute happens” relates an issue whether the right of action has been lost or not. The Interpretation has different provisions on “The date when a labor dispute happens” for different cases. For example, in relation to the dispute on the payment of salary during the term when the labor relationship is existent, if the enterprise has evidence to prove that it has notified the employee about its refusal of payment, the service date of such written notice is the date when the dispute happens. If the enterprise cannot prove that, the date when the employee claims shall be the date when the labor dispute happens.
The Interpretation allows the laborer to file a litigation using a bill signed in acknowledgement of payment. But if the claim does not refer to any other dispute of labor relationship, it shall be dealt with as a common civil dispute.
The Interpretation excludes six kinds of disputes to the scope of “labor dispute”, (1) a dispute which the laborer requires the social insurance agency to put out the social insurance; (2) a public-owned housing transfer dispute between the laborer and the enterprise arising from the housing system reformation; (3) a dispute of objection of a laborer to the injury grade appraisal conclusion submitted of the labor capacity appraisal committee or to the occupational disease appraisal conclusion of the occupational disease diagnosis and appraisal committee; (4) a dispute between a family or individual and a family service provider; (5) a dispute between a private craftsman and an assistant or apprentice; and (6)a dispute over a rural contractor and a person he has employed.
The Interpretation provides if any of the following case is proved by a party during the term of application to the arbitration, the court shall affirm that such term pauses: (1) claiming his rights to the other party; (2) applying to the relevant authority for relief; (3) the other party’s consent to perform the obligation. In case that the term of application to arbitration discontinues, the term of application to arbitration shall be recalculated from the date that the other party clearly refuses to perform the obligation, or the relevant authority makes a disposal decision or it clearly refuses to handle it.
The Several Provisions applies to the case that the addressee of the judicial documents has no domicile in China.
The court may service the documents to the following persons: the addressee is a natural person or a legal representative or principal of an enterprise or other entities within China; a law agent, unless the addressee clearly shows in the power of attorney that the law agent has no power to receive any judicial documents; a representative office set up in China by the addressee; a branch or business agent of the addressee in China, which has been authorized by the addressee. Moreover, service by leaving rejected legal processes at the place of domicile shall apply to service to the above persons.
If the addressee does not undertake the procedure of acceptance of judicial documents serviced by the court, but he refers to the contents of the documents in writing or he has performed according to the contents of the documents, it shall be deemed as to be serviced.
The Measures applies to occupational skills training institutions and educational projects cooperatively held by the Chinese educational institutions and foreign educational institutions.
The Measures provides on the conditions for establishment, documents submitted for application, contents of a cooperative agreement and articles of association, for Sino-foreign occupational skills training institutions, and conditions for holding Sino-foreign occupational skills training educational projects and the documents submitted in application. The establishment of Sino-foreign occupational skills training institutions shall be approved by the labor and security authority of the province, autonomous area, municipality where the intended institution is. The holding of Sino-foreign occupational skills training educational projects shall be approved by the labor and security authority of the province, autonomous area, municipality where the intended institution is, and put on record at the labor and security administrative department of the State Council.
The Measures also provides on the structures of Sino-foreign occupational skills training institutions，such as the council, board of directors, and activities of education.
Sino-foreign occupational skills education projects approved before the implementation of the Measures shall make up applying for the Sino-foreign educational project certificate. Any Sino-foreign occupational skills training educational project which does not meet the conditions shall meet such conditions within 1 year after the implementation of the Measure.
The Opinions requests the overseas entities and individuals who invest in purchasing real property not for its own use shall set up a foreign invested enterprise. If the total amount of investment of such enterprise exceeds US$10,000,000, the registered capital shall not be lower than 50% of the total amount of investment, which is higher than the regulations existing now. The Opinions allows two kinds of entities or individuals to purchase a commercial house for self-use or self-accommodation: 1. a branch or representative in China; 2. a foreigner who has studied or worked in China for more than 1 year. But the above two kind of entity or individual shall use its actual name when purchasing a house.
The Notice makes clear provisions on the procedures which shall be undertaken and the documents which shall be submitted for approval when the qualified foreign entity, individual, residents of Hong Kong, Macau and Taiwan or overseas Chinese purchases houses.
§ IP Cases
The Supreme People’s Court made the final judgment in the case of Beijing Jiayu Dongfang Wine Co., Ltd. (hereinafter referred to as “Jiayu Company”) vs. China National Cereals, Oils and Foodstuffs Corp. (Hereinafter referred to as “CNCOFC”) regarding the trademark infringement dispute on August 10, 2006, which affirmed the infringement by the appellant. The defendants of the first instance also included Nanchang Kaixin Sugar & Wine Co., Ltd. (hereinafter referred to as Kaixin Company) and Qinhuangdao Hongsheng Wine Co., Ltd. (hereinafter referred to as Hongsheng Company).
CNCOFC became the holder of the trademark of “Great Wall” (No. 70855, the registered commodities are Category 33 “Wine and others”) which was assigned from a third party on April 8, 2006. The “Great Wall and its image”, registered in Wine in Category 33, was recognized as a famous trademark by the State Trademark Bureau in November, 2004. On May 21, 1999, Kaixin Company applied to the State Trademark Bureau for the trademark of “Jiayu Great Wall”(No. 1502431). On March 18, 2001, Kaixin Company granted Jiayu Company the license to use “Jiayu Great Wall”. On June 21, 2002, Kaixin Company registered the trademark of “Jiayu Fazenda”(No. 1792430) and the trademark of “Jiayu”(No. 1792431). Jiayu Company authorized Changli Tian’s Wine Co., Ltd., Yantai Ouhua Wine Co., Ltd. (hereinafter referred to as “Ouhua Company”) and Hongsheng Company to produce the wine with the trademark of “Jiayu Great Wall”.
One question raised in this case is that whether the trademarks used by the two parties were similar or not.
The Supreme People’s Court held that, according to Article 9 and Article 10 of “The Interpretations of the Supreme People’s Court Concerning the Application of Laws in the Trial of Cases of Civil Disputes Arising from Trademarks”, in a case of trademark infringement, when determining whether the trademark charged with infringement was similar to the claimed registered trademark, attention should be paid to such specific cases as the distinctiveness and prominence of the trademark or its component factors, and an integrated analysis and judgment shall be made on whether the whole or part of the trademark caused confusion on the market, taking into consideration and making comparisons between the font styles, pronunciations, meanings of the words, or in the composition and color of the pictures, or in the overall structure of all the elements combined. If it may cause confusion, it should be affirmed as “similar”; and otherwise, it should not be affirmed as “similar”..
In this case, the “Great Wall” or the characters of Great Wall were distinctive to recognize the wine products produced by CNCOFC, so it constituted the main part of the trademark. The trademark “Jiayu Great Wall and its image” of Jiayu Company used the most distinctive elements of the trademark of “Great Wall” (No. 70855), and may easily cause confusion to the relevant people. Therefore, it was affirmed that the trademark “Jiayu Great Wall and its image” used by Jiayu Company was similar to the “Great Wall” No. 70855. Without authorization from CNCOFC, it shall be held as infringement for Jiayu Company to use this trademark, for Kaixin Company to license Jiayu Company to use the trademark and for Hongsheng Company to process wine for Jiayu Company with this trademark. Therefore, they shall take civil liabilities for this.
The plaintiff stated that it was the holder of the copyright of Volume I and Volume II of “English” for Grade 7 and 8 and the relevant tapes of “English” Volume II for Grade 7, which were the standard testing textbooks of compulsory education curriculum. The contents of the textbooks could be downloaded by various types of electronic dictionaries produced by Ozing Company, and Chunguo Company and Zhongguancun Company sold such products without authorization, so they infringed upon the copyright of the plaintiff.
Ozing Company defended that the website of www.2e-go.com was not operated by it. It only provided links to the website. The website of Ozing Company only used part of the words in the textbooks of the plaintiff, and it did not use the explanations either. So the infringement should not be established.
The court held that www.2e-go.com was not operated by the defendant, but the download could be completed according to the instructions after logging in the website of Ozing Company, which was enough to show that it was Ozing Company who provided the download services. So the infringement should be established. The products sold by the other two defendants did not contain the contents of the textbooks of the plaintiff, so the other two defendants did not make infringement upon the plaintiff.?
The plaintiff stated that, Delisi Company was the producer of the switches branded with “TOMPOL”. Jincheng Company was the distributor of the products in Beijing. Zhanda Law Firm had been authorized by Zeng Yi to hand out notices in the market, stating that the TOMPOL-branded switches infringed upon the patent right of ZengYi and requesting the sellers to stop selling the products. The sales of “TOMPOL” switches stopped whereof, which caused great economic losses to the reputation of the products and normal marketing activities. So the plaintiff requested that the defendants stop infringement, apologize and compensate for the losses.
The court held that, the managers in the “Anti-unfair Competition Law of China” refer to legal person, other economic organizations and individuals who provide goods or services for the market. In this case, it was an activity of providing legal services when Zhanda Law Firm, commissioned by Zeng Yi, sent the lawyer’s letters to many markets, which did not compete with Delisi Company or Jincheng Company. In addition, the contents of the lawyer’s letter were true. They were only intended to stop the infringement and warned the markets selling the infringing products. No activity was involved of decrying the reputation of the products of Delisi Company or Jincheng Company, nor was there any improper disturbance of their lawful business. So unfair competition was not established. Therefore, the court judged to reject the claim of the plaintiffs.
The plaintiff stated that, it concluded the contract on the book publication with Meteorology Publishing House on April 8, 2002. According to the contract, the plaintiff granted an exclusive license of publication of the book “Jianfeng Spoken English (Edition for junior Middle School)” (hereinafter referred to as “the Book”), and the remuneration=the price of the Book*the number of copies sold *6% (royalty rate). The Book was printed in September 2002 and the printed number was 15,000 and the current storage was 1648 copies. According to the formula of Sales quantity = Printed number minus storage, the total sales quantity should be 13,886 copies. But the Meteorology Publishing House only paid RMB6,747 for 5,680 copies, and refused to pay for the remuneration for the other 8206 copies. Therefore, the plaintiff requested the court to rule that the defendant paid the remaining RMB9,749.
The defendant defended that the sales quantity agreed in the contract shall be calculated according to the equation of “sales quantity = printed number - number of stylebooks - number of damaged books - number of donated books”. The printed number of the Book was 15,000 copies, and after deducting the number of the stylebooks, the damaged and discarded copies, the donated copies and the stored copies, the actual number was 10,822, and the payable remuneration was RMB12856.54. Therefore, the defendant did not owe any remuneration to Wang Fei.
The court held that, neither the sample copies nor the damaged copies went into the book market, and it did not affect the interest of the copyright holder. So it should not be counted into the sales quantity. On the issue whether the Meteorology Publishing House should pay the remuneration for the copies donated by itself, the court held that, both parties failed to have any provisions in the Contract on the disposal of the books after the expiration of the Contract, it should not be deemed that the Meteorology Publishing House had the right of disposal. The Meteorology Publishing House did not claim and prove that the sales of the Book after 2006 was impossible, so it could be deemed that the above books might enter the market after 2006, and Wang Fei could get remuneration from the sales. The donation of the copies would reduce their chance to be sold in the market and therefore impair Wang Fei’s interest. Therefore, the Meteorology Publishing House donated the copies of the Book without authorization impaired the interest of Wang Fei and should make compensations. However, due to the fierce competition of English books for Middle Schools, even if the books had not been donated, there was not much chance for the books to be sold. Therefore, considering the unilateral disposal of the Publishing House, the commonweal of the donation and the value of the Book after 2006, the court ruled that 40% of the remuneration specified in the contract shall be paid.
The appellant thought that the appellant was the inventor of the patented technology involved in this case. Baibotong Company disseized the patent application right of Zheng Guanghe, so Zheng Guanghe claimed for its right.
The court of the second instance held that according to the principle “the burden of proof lies upon him who affirms”, Zheng Guanghe should bear the burden of proof for the patent application right since he said that he had such right.
Zheng Guanghe stated that in November 2002, before the establishment of Baibotong Company, he had completed the invention of “Neisanhuan Speed-down Machine”. But Zheng Guanghe did not apply for the patent until Baibotong Company applied for the patent of utility model on December 22, 2003. What is more, Zheng Guanghe did not provide any evidence to prove how Baibotong Company had obtained the technical documents during the application of the patent by the Company. In addition, the application for the patent went into public in April 2005, but Zheng Guanghe did not claim for his right until his resignation in November 2005. From the facts above, the court deduced that Zheng Guanghe had no objection when Baibotong Company applied for the patent before his resignation. Therefore, the court considered that Zheng Guanghe had no factual or legal basis to claim that he had the patent application right of the technology called “Neisanhuan Speed-down Machine”, and therefore his claim was not supported by the court.
The plaintiff stated that it was the holder of the registered trademark “LV” (No.241081), which was well-known in China. The two defendants used “LV” in a big outdoor billboard advertisement without permission from the plaintiff, and the handbag which borne the logo of “LV” was in a prominent position of the advertisement image. The plaintiff considered that the defendants used “LV” and its fame to attract attention from the public, and enhanced the reputation of the real estate project, which not only infringed upon the trademark right of the plaintiff, but also constituted unfair competition.
The two defendants defended that the claim of the plaintiff was only for trademark No. 241081, but the evidence provided by the plaintiff was not enough to prove that the plaintiff was the holder of the trademark, nor was it enough to prove that the trademark was famous. So the behavior of the defendants constituted neither trademark infringement, nor unfair competition.
The court held that according to the business scope of the defendants and the contents of the advertisement, the defendants had direct interest in the advertisement so they should be liable for the advertisement. The defendants knew that the “LV” handbag was famous, but still used it in the advertisement to improve the standards of the real estate project. Their use of the products of the plaintiff for publicity was intentional use of the resources of the plaintiff, and the interests they obtained in this way were not fair. For business purpose, the defendants used, without any effort and intentionally, the achievements of the plaintiff and acquired a beneficial market status and damaged the lawful rights of the plaintiff, so unfair competition was established.
However, the image of “LV” in the advertisement did not have any effect of trademark upon the real property project. Though “LV” was included in the advertisement, it is only part of a handbag, the whole of which was used as a prop in the hands of the model. Therefore, the pattern was not intended as the trademark name or decoration of the product to be advertised, and it did not have the effect of a trademark. Meanwhile, though the model and the handbag occupied 1/3 of the advertisement, the remaining was full of advertising slogans. The customers would not be misled that the real estate project was developed by the plaintiff or that the real estate project had any relation with the plaintiff, which means that no confusion about the source of the project would arise due to the advertisement. Therefore, the defendants did not infringe upon the trademark.
§ Analysis of Cases
On December 25, 2001, the Export-Import Bank of China (hereinafter referred to as Bank) and the Stone Group signed on a “Loan Contract for Export Sellers’ Credit”(hereinafter referred to as Loan Contract). It’s agreed that the limit of the export sellers’ credit supplied by the Bank to Stone Group was RMB180, 000,000 and the term was 13 months. Guangcai Group provided guaranty for the loan. If the Stone Group did not return the principal and its relevant interests on schedule, Guangcai Group would return them. On that day, the bank and Guangcai Group concluded a “Guaranty Contract”, which said, Guangcai Group would take joint liability for all the debts under the above Loan Contract. The term of guaranty should be two years from the due date of debts. If there was any extension, the term of guaranty should be changed accordingly. What should be explained here was that Stone Group was one of the shareholders of Guangcai Group.
On December 26, 2006, a “Loan Reformation Agreement” was executed by the Bank, Stone Group and Guangcai Group, as a change and complement to the “Loan Contract for Export Sellers’ Credit” and “Guaranty Contract”. The loan reformation amount was RMB160, 000,000 and the initial interest was 4.23%. And thereafter, the interest should be implemented according to the annual loan interest of People’s Bank. Guangcai Group would provide joint liability for all the debts of the Stone Group under the “Loan Reformation Agreement”, and the term of guaranty was two years from the due date of all the debts. If the Stone Group did not repay the principal or interest, or it did not undertake the mortgage procedure before June 30, 2006, then the Bank was entitled to declare that all the debts were due and requested the Stone Group and Guangcai Group to repay all the debts immediately.
Until September 1, 2005, the Stone Group did not repay the amount on schedule and the Bank decided to declare all of the debts were due, according to the “Loan Reformation Agreement”, and it filed the suit to Beijing Higher People’s Court, applying the Stone Group and Guangcai Group to repay the total principal RMB136, 000,000 and its interest.
The judgment of first instance:
The court found that the loan relationship provided in the contract signed by the Bank and Stone Group and “Loan Reformation Agreement” was lawful and valid. However, the guaranty provided by the Guangcai Group to its shareholder Stone Group was not approved by shareholders meeting. So the guaranty clause was ineffective. The court judged that the Stone Group should pay the principal and interests. Guangcai Group should bear 1/2 liability for the due debt. The Bank did not obey the judgment of first instance and appealed.
The main points of the final trial and the judgment:
In the trial of second instance by the Supreme People’s Court, the disputed points are: 1. whether the resolution, “continuously providing joint guaranty for Stone Group”, made by the Board of Directors on November 3, 2003 was effective; 2. Whether the activity that the Guangcai Group provided joint liability guaranty to its shareholder, the Stone Group by a resolution, was invalid because it violated the inhibitive provision.
On the above points, the Bank held that: 1. the trial of first instance found the resolution was ineffective due to the defect in the procedure of the board resolution in 2003, which should not be established for four reasons: first, the agreement repeated the representation of Guangcai Group to provide guaranty of joint liability continuously, which did not affect the guaranty contract between Guangcai Group and the appellant. Secondly, the Reformation Agreement was a revision and supplement to the Loan Contract and Guaranty Contract, and the guaranty conformed to the articles of association; thirdly, there was logically wrong for the trial of first instance to conclude that the quorum for the board of directors and shareholders had not been formed because there were only two signatures on the resolution; since the judgment maintained that there was overlap of the members of the board and the shareholders meetings, it could be seen that the board of directors executed the right of shareholders meeting, so the guaranty contract concluded on October 23, 2001 should be deemed as effective. 2. “Company Law” did not prohibit a company from providing guaranty to shareholder.? On premise that the scope of board of Guangcai Group was authorized by its articles of association had not been confirmed, the judgment of first instance discarded such premise, and dismantled the conclusive statements given in the “Zhongfu Shiye Guaranty Case” by the Supreme People’s Court. So it was lack of fairness.
The court of second instance adopted the above points of the appellant, affirming that Chinese Company Law did not prohibit a company to provide guaranty for its shareholders. It was not forbidden or limited that a company provided guaranty for its minority shareholders with the asset of the company, permitted by shareholders meeting or the board of directors of the company. Considering from the perspective of value, when there was conflict between the interest of the creditors and the shareholders of the company, the creditor’s interest should have priority. Moreover, even if there had been defect in the board resolution, it was internal activity of the company, and there was no effect on the guaranty to a third party. Accordingly, the Supreme People’s Court finally judged that Guangcai Group should take joint liability for the debts of Stone Group.
Analysis of a Lawyer:
This case had happened before the promulgation of “Company Law” and the essential issue was whether a company might provide guaranty for its shareholders? This issue was disputed in the industry of finance and law. Article 6 of the previous Company Law provided that “A director or manager shall not provide guaranty for the shareholder or the debts of other individual by the asset of the company”. The “director” was a key point in application of this article. The Supreme People’s Court adopted a way of extensive interpretation in the“Zhongfu Shiye Case”, judging that the contract in which Xingfu Shiye provided mortgage to Xingfu Group was ineffective. But in this case, the appellant pointed out in the trial of second instance that the guaranty contract should be effective because: (1) the specific interests of the parties were measured in this case. The share of the Stone Group was only 0.2%, so there was no such case to impair the interest of minority shareholders. In such measurement, the creditors of the company should be protected better. (2) The particularity in the constitutions of the board and shareholder (there was overlap) made the resolution made by the board of Guangcai Group not violate the relevant provisions in the articles of association. So it was effective.
(This case was published in the bulletin of Supreme People’s Court and has a guiding effect.)