“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
Shanxi International Power Group Company Ltd (“SIEG”), a state-owned provincial investment company, is a well-known regional investor focusing primarily on power, coal mine and other energy projects. It intended to cooperate with international strategic investor, both industry investor and financial investor, to restructure its energy assets. As suggested by our firm, this project is carried out in a form of Sino-foreign Joint Venture Investment Company. SIEG is the majority shareholder in the investment company. The foreign parties are a Korean company and a famous foreign bank. The Korean company has large investments in power projects in Asia. And the bank is a subsidiary of a foreign bank, focusing on financial investments in Asia. SIEG makes contribution in assets and the foreign parties in cash, to establish the company, which is known as the second Sino-foreign joint venture investment company to be approved by Ministry of Commerce.
SIEG attracts a foreign capital with an amount much more than its equivalent contributed assets to continue investment in energy projects. Furthermore, the potential financing capability of the Company in future shall not be neglected.
HL has dual role in the transaction, i.e., assisting client to be acquainted with international M&A on one hand, and consulting client on various procedures regarding state-owned assets restructuring on the other. Considering that there is no precedent of such large foreign strategic investment in Shanxi Province, HL, based on previous experience in M&A and energy project investment, has been carefully assisting clients with structuring the deal, designing the transaction proposal, setting up the SPV, negotiating joint venture contract and asset purchase agreement, and consulting on all relevant approval procedures.
§ Latest Laws and Regulations
From a perspective of a legal professional, at least the following contents need our attention:
1. Application of the Property Law
According to Article 2 of the Property Law, the Property Law is applied to any civil relationships generated from the attribution and utilization of the res (includes realties, chattels, and rights which are provided as the objectS of the property rights), which means if there is any discrepancy between the previous provisions on the attribution and utilization of the res and the Property Law, the Property Law shall prevail. This is important in the application of laws, relevant to the realization of the laws on property rights.
Of course, if such provisions are relevant to the property rights, and are formulated by the National People’s Congress and its standing committee, such as the “Law on the Contracting of Rural Land” and “Law on Mineral Resources”, they shall prevail, based on the principle of special law derogates general law.
2. Rights on Realities shall come into effect on registration
According to the provisions of the Property Law, the establishment, change, assignment and cancellation of the rights on realities shall come into effect on registration, unless otherwise provided by the laws. This is to say, in judging the attribution of the realities, or the completion of an assignment, the registration records shall be examined. On the other side, only the examination on the registration is needed, since the registration shall have public faith effects. The right holder, who is entered in the realities registration book shall be the right holder accepted by laws. Such person may exercise his rights on the realities.
In addition, according to Article 15 of the Property Law, a contract concerning change of property right shall be effective when it is concluded, unless otherwise provided in the laws or agreed in the contract. Failure to go through registration of the property right shall not affect the validity of the contract. This provision clearly differentiates the validity of contracts and effectiveness of change of property laws. It can be forecasted that once the Property Law is implemented, Article 41 of “Guarantee Law”, which provides that a mortgage contract shall be effective once the registration is undertaken, will not be applied.
3. Compensation for requisition of realities and chattels
According to Article 42 of the Property Law, the government may requisite the realities owned by the natural persons under some conditions as follows:
Concerning chattels, the Property Law uses “levy”, not “requisition”, and the following conditions shall be met:
A. In case of the needs of emergent dangers or disasters
B. in accordance with the statutory power limit and procedures
C. The realties shall be returned to the owners after the emergent use. Where any chattel is damaged or lost after it is used, corresponding compensation shall be made.
4. bona fide acquirement of realities
The system of bona fide acquirement is an important civil system, traditionally applied to acquirement of chattels. However, according to Article 106 of the Property Law, such system can also be applied to realities. The requirements to be met are as follows:
The system of bona fide acquirement of realities, together with the regulations on the effectiveness of registration book, is important to the assignment of realities and the stability of the rights on realities after assignment.
5. Extension of the scope of assets to be mortgaged
According to Article 180 and Article 181 of the Property Law, “manufacturing facilities, raw materials, semi-manufactured goods and products” and “other assets which are not forbidden to be mortgaged by the laws and regulations” may be the assets to be mortgaged. These provisions extend the scope of assets to be mortgaged, and establish a system similar to the floating charge in common law, meaning that the mortgage can be carried out over the current or potential manufacturing facilities, and the semi-manufactured goods and products. Their difference is that the floating charge can not be applied to realities, intellectual properties and claims. Moreover, the floating charge shall be registered at the commerce administrative department where the mortgagor is located. A mortgage contract which is not registered can not be effective vis-à-vis a third party.
Similarly, Article 223 provides that “the receivables” and “other rights on assets which are permitted to be pledge by the laws and regulations” can be the assets to be pledged, and it clarifies that the right of pledge on receivables shall be established when the relevant credit rating institution has registered the pledge.
6. Establishment of Claims for Protection of Possession
According to Article 245 of the Property Law, if the realities or chattels are encroached, the possession is impaired, or there is damage caused from such encroachment or impairment, the possessor may be entitled to return the original objects, eliminate the impairment on possession, prevent the impairment on possession, and request compensations for damages respectively. Concerning the exercise of the claim of a possessor for returning the original object, whether the possessor has the right to possess it or not, or possesses it bona fide or not, the possessor shall have the right to claim, within one year as of the date of encroachment. This system is very important to protect the factual state, and the current possession of the object, and prohibit destruction from other third parties, to protect the stability of the society.
The New Tax Law include eight parts, the general principles, taxable amount of income, amount of payable taxes, preferential tax treatment, withholding by Sources, special adjustments to tax payments, administration of tax collection, and supplementary provisions. The New Tax Law is a legal reflection against the requirement on equal competitive environment as foreign enterprises made by the domestic enterprises, it is also a reflection against the requirement made by the foreign investment enterprises on transparent tax environment and regulations. Moreover, it is an important decision and legal trial of the state on adjustment of macro economic structure and learning international experience on tax. The most important and direct adjustments in tax reform are particularly reflected in unification of the tax rates of the domestic enterprises and foreign investment enterprises, means and standard of deduction before tax and preferential tax treatment. Therefore, the New Tax Law will have important effects in business of various kinds of enterprises, their achievements, interests of shareholders and charities.
The New Tax Law classifies the enterprises into resident enterprises and non-resident enterprises, by reference to the Individual Income Tax Law. According to the New Tax Law, the resident enterprises refer to an enterprise which is established inside China, or which is established under the law of a foreign country (region) but whose actual institution of management is inside China. A resident enterprise shall pay the enterprise income tax for its income from China or foreign countries. In addition to the enterprises established in China, those which are registered in foreign countries, and have actual institution of management in China are also deemed as resident taxpayer by the New Tax Law. For those enterprises that register offshore enterprises for controlling domestic enterprises for all reasons, what shall be considered is that whether they will be considered as resident enterprise.
How to determine whether the enterprise has an actual institution of management? It will be clarified in the regulations promulgated by the State Council. Otherwise, many problems that may arise during the execution concerning resident taxpayer can not be solved by the New Tax Law itself.
2. Non-resident Enterprise
Compared with the resident enterprise, "non-resident enterprises" refer to enterprises established under the law of a foreign country (region), whose actual institutions of management are not inside China but which have institutions or establishments inside China; or which has not any institution or establishment inside China but which has incomes sourced in China. The non-resident enterprises that have institutions or establishments in China shall pay enterprise income taxes for the incomes from China, and the incomes which do not come from China but they are substantially relevant to the institutions or establishments. If the non-resident enterprises do not have institutions or establishments in China, or the incomes have no substantial relationship with the institutions or establishments, then the enterprises shall pay the enterprise income taxes for the incomes from China.
3. Consolidation of tax rates
The New Tax Law provides the tax rates for three kinds of enterprises: 15% is applied to the important high- and new-tech enterprises which are necessary to be supported by the state (no limitation on regions); 20% is applied to the small meager-profit enterprise; and 25 is applied to other enterprises. Compared to the previous tax laws, it is important to the domestic enterprises. This new tax policy indicates that the state will not set up a tax standard according to the nationality or identity of the investors, but to the actual conditions of the enterprises themselves and their status in the national economic structure.
4. Preferential tax treatments and the transition from the old preferential tax treatments to the new ones
It is certain that the state will grant preferential tax treatments on enterprise incomes, mainly of the industries and projects which are supported and encouraged to be developed. For example, the following incomes shall be tax-free (1) the income from treasury bonds; (2) dividends, bonuses and other equity investment proceeds distributed between qualified resident enterprises; (3) dividends, bonuses and other equity investment proceeds which a non-resident enterprise with institutions or establishments in China obtains from a resident enterprise and which have actual connection with such institutions or establishments; and (4) incomes of qualified not-for-profit organizations. And the enterprise income tax on the following incomes may be exempted or reduced: (1) the incomes incurred from projects of agriculture, forestry, husbandry and fishery; (2) the incomes incurred from business operations of the important public infrastructure investment projects supported by the state; (3) the income incurred from the projects of environmental protection, energy and water saving, which meet the relevant requirements; (4) the incomes incurred from the transfer of technologies, which meets the relevant requirements.
Under the New Tax Law, a startup investment enterprise engaged in important startup investments which are necessary to be supported and encouraged by the state may deduct from the taxable amount of incomes a certain proportion of the amount of investment. Where it is surely necessary to accelerate the depreciation of any fixed asset of an enterprise because of technological progress or due to any other cause, it may shorten the term of depreciation or adopt an approach to accelerate the depreciation. The incomes generated by an enterprise from producing products conforming to the industrial policies of the state by way of comprehensive utilization of resources may be downsized in the calculation of the amount of taxable incomes. The amount of an enterprise's investment in the purchase of special equipment for environmental protection, energy and water saving, work safety, etc. may be deducted from the tax amount at a certain rate.
The New Tax Law has specific provisions on the transition of the previous preferential tax treatments to the new ones in the Supplementary Provisions. The enterprises which have already been established prior to the promulgation of the New Tax Law and enjoyed low tax rates according to the provisions of the tax laws and administrative regulations in force at that time may, according to the provisions of the State Council, continue to enjoy the preferential treatments within five years after the present Law is promulgated and gradually transfer to the tax rate as provided for in the this Law. Those which enjoy the preferential treatment of tax exemption for a fixed term may, according to the provisions of the State Council, continue to enjoy such treatment after the promulgation of the New Tax Law until the fix term expires. However, for those that have failed to enjoy the preferential treatment due to failure to make profits, the term of preferential treatment may be counted as of the year when the present Law is promulgated. Enterprises which are established within the particular areas established for developing foreign economic cooperation and technological exchanges and the high- and new-tech enterprises that need the key support of the state newly established within the areas where the State Council has provided for the implementation of the abovementioned special policies may continue to enjoy transitional preferential tax treatments. Other enterprises falling in the encouraged category as already determined by the State Council may enjoy the preferential treatment of tax reduction or exemption according to the provisions of the State Council. Where any provision in a tax treaty concluded between the government of the People's Republic of China and a foreign government is different from the provisions in this Law, the provision in the said treaty shall prevail.
5. Taxable amount of incomes and standards of deduction
The taxable amount of incomes as mentioned in the New Tax Law refers to the balance after deducting the tax-free incomes, tax-exempt incomes, all deduction items as well as the permitted remedies for losses of the previous years from an enterprise's total amount of incomes of each tax year. The standard of deduction is changed a lot by contrast with the previous tax laws (especially for domestic enterprises): The reasonable disbursements which are actually incurred and which have actual connection with the business operations of an enterprise, including the costs, expenses, taxes, losses, etc., may be deducted in the calculation of the taxable amount of incomes. Meanwhile, with regard to an enterprise's disbursements for public welfare donations, the portion that accounts for 12% of the total annual profits or less is allowed to be deducted. The following incomes included in the total amount of incomes shall be tax-free incomes: (1) the appropriations from the treasury; (2) the administrative fees and the governmental funds which are charged according to the law and fall under treasury administration; and (3) other tax-free incomes as prescribed by the State Council. In addition, the depreciation of fixed assets, amortized expenses of intangible assets, costs of inventories and the net value of the assets transferred by the enterprises, calculated in a provided way, are allowed to be deducted.
It needs intention that, according to the New Tax Law, in calculating the enterprise income tax, an enterprise shall not offset the losses suffered by its institutions in foreign countries with the profit gained by the domestic institutions. Meanwhile, the losses suffered by the enterprise within a tax year may be carried forward and subtracted from the incomes during subsequent years for a maximum carry-forward period of 5 years.
6. Withheld income taxes
The payable income taxes on the incomes as described in paragraph 3, Article 3 of the New Tax Law which a non-resident enterprise earns shall be withheld by sources, with the payer acting as the obligatory withholder. The tax amount shall be withheld by the obligatory withholder from each payment or payment due. For the income tax that shall be withheld but which the obligatory withholder has failed to withhold or is unable to perform the withholding obligation, the taxpayer shall pay them at the place where the income has occurred. If the taxpayer fails to do so, the tax authority may recover the payable tax of the enterprise from its other income items from China for which the payer should pay.
The tax rate on the incomes of the non-resident enterprise is 20%. The specific ways for calculating the taxable amount of incomes are as follows: (1) the interests from investment such as dividends and interests of shares, and the interests, rents, franchising fees shall be levied on taxes for all of such incomes; (2) the incomes gained from transfer of assets shall be levied on taxes for the balance calculated from deducting the net value of the assets from the incomes; (3) other incomes. The taxable income shall be calculated by reference to the first two items.
7. Measures for resisting tax avoidance
The New Tax Law provides on the resistance of tax avoidance specifically. With regard to a transaction between an enterprise and its affiliate, if the taxable revenue or income of the enterprise or its affiliate decreases due to inconformity with the arms length principle, the tax organ may make an adjustment through a reasonable method. The costs of an enterprise and its affiliate for joint development or accepting the assignment of intangible assets, or jointly providing or accepting labor services shall, according to the arms length principle, be apportioned in the calculation of the taxable amount of incomes. An enterprise may file with the tax organ the pricing principles and computation approaches for the transactions between it and its affiliates, the tax organ and the enterprise shall enter into an advance pricing arrangement upon negotiations and confirmation. When an enterprise submits to the tax organ its annual enterprise income tax returns, it shall enclose an annual report on the affiliated transactions between it and its affiliates. When the tax organ investigates into the affiliated transactions, the enterprise and its affiliates, as well as other enterprises relating to the affiliated transactions under investigation, shall provide the pertinent materials according to the relevant provisions. Where any enterprise refuses to provide the materials of transactions between it and its affiliates, or provides any false or incomplete materials which cannot reflect the true information about the affiliated transactions, the tax organ may decide its taxable amount of income upon check. With regard to an enterprise which is established by a resident enterprise or controlled by an resident enterprise or by a Chinese resident and which is located in a country (region) where the actual tax burden is obviously lower than the tax rate as prescribed in paragraph 1 of Article 4 of this Law, if the profits are not distributed or if less profits are distributed for a cause not attributable to reasonable business operations, the portion of the aforesaid profits attributable to this resident enterprise shall be included in its incomes of the current period. The interest disbursement for any credit investments and equity investments, which an enterprise accepts from its affiliates, in excess of the prescribed criterion shall not be deducted in the calculation of the taxable amount of income. Where an enterprise makes any other arrangement not for any reasonable business purpose, if its taxable revenue or income decreases, the tax organ has the power to make an adjustment through a reasonable method.
Since the New Tax Law has not clarified on many specific issues, it can be forecasted that the State Council will formulate the provisions on implementation on the relevant issues thereof.
The Provisions made great changes to the “Tentative Provisions on the Administration of Futures Transaction” (hereinafter referred to as the “Tentative Provisions”), promulgated on June 2, 1999, among which the most obvious one is that the scopes which they are applied to, since the Provisions do not only apply to commodities futures contracts, but also financial futures contract, and the option contracts transactions and the relevant activities. The futures trading shall be carried out in the futures exchanges established in accordance with the law or in other trading places as approved by the futures regulatory institution of the State Council. It does not apply to the non-standard option contracts for the transactions off the counter.
The Provisions provides that the establishment of a futures exchange shall be approved by the futures regulatory institution of the State Council. The Provisions affirms a futures company as a financial institute. It also deletes the provision in the Tentative Provisions that the financial institute must not carry on futures transaction, provide finance for futures transactions, or guarantee for them. But the qualifications for a banking financial institute to provide finance for futures transactions or guarantee for them shall be approved by the banking regulatory institute of the State Council.
The Provisions also provide for basic rules for futures transactions in a particular chapter. It requests to strictly execute the system of caution money; the state-owned or state controlled enterprises, which conduct futures transactions at home and abroad, shall follow the hedging principle and strictly abide by the relevant provisions of the state-owned asset supervision and administration institution of the State Council and other relevant departments on enterprises’ entering the futures market with state-owned assets. The commerce administrative department of the State Council shall examine and verify the varieties of overseas commodity futures which may be traded by the domestic entities or individuals.
The Provisions further clarifies the supervision duty of the futures supervisory institute of the State Council, setting up its duties, supervisory measures, established supervisory systems and risks handling measures. The Provisions provides on futures transactions in a disguised form. Without approval of the futures regulatory institution of the State Council, any institution or market which conducts centralized trading on the basis of standard contracts and simultaneously adopt the following trading mechanism or bears the feature of either of the following trading mechanism shall be deemed as conducting futures transactions in a disguised form: (1) Providing all buyers and sellers who participate in the centralized trading with a guaranty to perform the contracts; or (2) Adopting the mark-to-market system and margin system, and simultaneously collecting a sum of margin which accounts for less than 20% of the amount of the subject matter of each contract. Such transactions shall be rectified within a term specified by the commerce administrative department of the State Council.
The Measures provides on the establishment, change, business of the futures companies, corporate governance, brokerage business rules, and protection of clients’ assets.
The shareholder of the futures company shall have Chinese legal personality. An shareholder which has 5% of shares of the futures companies shall meet the specific requirements, for example, it has no due debts at a relatively large amount; the net assets shall not be lower than 50% of the actually contributed capital; its potential liabilities shall be lower than 50% of the net assets; there is no other risk which may have great and uncertain influence on the financial state; and so on. An shareholder which has 100% of shares shall additionally meet the following requirements: the net assets shall not be less than RMB 1,000,000,000 Yuan; if the shareholder does not use net assets or other similar index, the net asset shall not be less than RMB 1,500,000,000 Yuan. It needs attention that a futures company which is established according to the Measures may carry on commodities futures brokerage business, but the business qualification shall be applied to otherwise if it intends to carry on financial futures or other business.
Concerning corporate governance, it is requested that a futures company shall establish and perfect the corporate governance, and be separate from its controlling shareholder in business, staff, assets and sites. It shall carry on independent operation and accounting. A futures company shall have capital risk officer.
Concerning the brokerage business rules, it is requested that a futures company shall avoid interest conflicts with its clients, and ensure the clients’ interests as the priority. The client who opens an account shall be in its true name.
The Notice further explains for the definition of “resident”, to make it certain whether it can enjoy the treatment provided in “the Arrangement between the Mainland of China and Hong Kong SPR on Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on the Incomes”.
The Notice interprets “a standing institute” as a fixed business place where an enterprise carries all or part of its business. The fixed business as mentioned here refers not only to such fixed places as the offices, branches which has been registered for carrying on business at the other place, also to the offices or other similar office facilities which are used for providing service to other enterprises.
“A company whose main assets are composed of fixed assets” refers to that the fixed assets account for 50% of all the assets on book record during the term when relevant the shareholder holds the shares. In addition, if a Hong Kong resident once owns 25% of shares in domestic companies, the Mainland of China shall be entitled to collect taxes when it transfers all or part of its shares and have interests.
“For a period or periods not exceeding 183 days continuously or accumulatively in any 12 months after the relevant tax year begins or ends”, means that if the beginning or terminating months, during which a Hong Kong individual stays in the Mainland of China for more than 183 days successively or cumulatively, belong to two tax years, then all the incomes obtained from its work in Mainland of China during the two years shall be levied on taxes in the Mainland of China.
The Notice provides for assigning or leasing by means of bid tendering, auction and hanging out a shingle. If an agreement on industrial project investment is concluded before the issue of the “Notice of the State Council on Improving Land Control”, which provides for the scope and price of the land, and the relevant land has been go though the formalities for approval on the change of use of agricultural land and land requisition, then the assignment or leasing may continue in the way of agreement. But it shall sign a contract for assignment or leasing of lands before June 30, 2007, after making the relevant information to the public in compliance with the “Rules on Assignment of the Use Right of the State-owned Land by Agreement”. Otherwise, it shall still use the way of bid tendering, auction and hanging out a shingle.
The Notice requests the state-owned land and resources administrative department at the county or city level to control the key procedures in the bid tendering, auction and hanging out a shingle. For example, linking up the assignment of industry use land by means of bid tendering, auction and hanging out a shingle with the approval on change of use of agricultural land and land requisition, establishing and perfecting the land storage system, and preliminary application for land use.
The Ministry of Commerce promulgated the “Guiding Opinions of the Ministry of Commerce on Online Transactions (Tentative)” (hereinafter referred to as the “Guiding Opinions”) on March 6, 2007.
The Guiding Opinions are mainly for regulating the parties involved into the online transactions. They point out that the parties concerned shall, as many as possible, learn the true identity, creditability, contract performance ability before the transactions, and comply with all the requirements on concluding contracts. If the contract is concluded by means of an electronic signature, it shall comply with the laws and regulations on electronic signature; it also requests on payment security.
Concerning online transaction providers, the Guiding Opinions point out that if an online transaction provider provides the relevant service on online transactions, he shall comply with the relevant laws and regulations, and establish and perfect various rules and systems, such as user registration system, platform transaction rules, and information disclosure and approve systems.
The Interpretations further clarifies the conviction and sentencing concerning criminal cases of infringement upon IP, and gives definitions for some terms. It points out a holder who has infringing products promotes the sales of goods by means of advertisement or subscription belongs to the “circulation” provided in Article 217 of the Criminal Law. If a person publishes, copies or circulates the works of others, which commits crimes, then he shall be sentenced according to the provision on infringement on copyright.
According to the Interpretations, if a crime on infringement upon IP complies with the conditions on probation provided in the Criminal Law, the probation shall be applied. But it shall not be applied in the event that the criminal: (1) commits the crime of infringement on IP again, after being subject to criminal punishment or administrative punishment for infringement on IP; (2) does not repent for his crimes; (3) refuses to submit the illegal gains; (4) other cases which the probation shall not be applied. When judging on fines for infringement on IP, the courts shall determine the fines between twice and five times the illegal gains, or between 50% and twice the illegal sales amount, considering the amounts of the illegal gains and illegal sales amount, losses caused to the right holders, and damage to the society comprehensively,
To protect the interests of the victims, the Interpretations provides that if the victims have evidence to prove the criminal cases of infringement on IP, and bring them to the courts directly, the courts shall accept the cases according to the laws; if the cases seriously harm the social society and state interests, it shall be publicly prosecuted by the procuratorate.
The Provisions on Remunerations provides that the remunerations of the administrators shall be determined by means of the fixed prices, with a fluctuating extend within 30%. The plan for remuneration shall be approved by the first creditors’ meeting. In some special circumstances, the court may adjust the remunerations. What needs to be pointed out is that the Provisions on Appointment have important effects on the implementation of “Insolvency Law”. The specific analysis is as follows:
First, it provides on the procedures for formulating the name lists of the social intermediary institute administrators and of the individual administrators by each Higher People’s Court and Intermediate People’s Court, including formulating the public announcement of the name lists, materials which shall be submitted when application for access to the name lists, the first trial name lists determined by a reviewing committee composed of more than 7 members which is set up by the court, public announcement of the first trial name lists, and submitting to the Supreme People’s Court for filing when the term of public announcement expires. This procedure fully reflects a judicial idea of publicity, fairness and equality, and the organic joining of the professional selection and the public opinions may ensure that the insolvent enterprises will be managed by professional administrators.
Secondly, the administrators will be appointed publicly in such random ways as waiting in sequence, drawing lots or random selection of number. Meanwhile, the Provisions on Appointment list the interested relationship between the administrators and the insolvent enterprises provided in the Insolvency Law: having debts and claims with the creditors or debtors; providing relatively fixed intermediary service to the insolvent enterprises within three years before the acceptance of the insolvency by the court; being or having been controlling shareholders or actual controllers, financial consultants or legal consultants of the creditors or debtors now or within three years prior to the acceptance of the insolvency by the court. Such clear definitions determine the administrators who shall withdraw for interested relation, so that the administrators may fulfill their duties diligently and faithfully in the insolvency procedures.
In addition, the Provisions on Appointment also clearly provide on the change of administrators, procedures for change of administrators and the relevant legal effects.
At present, H&L is attaching great importance on the latest progress of these two Provisions, and intends to submit the relevant legal documents to Shanghai Higher People’s Court to access to the administrators name lists.
§ IP Cases
The court of the first instance ruled that China and Switzerland were both members of “Paris Convention on Protection of Industrial Property”. As a Swiss, the plaintiff was entitled to bring the suit in a Chinese court under the “Paris Convention on Protection of Industrial Property”. The authenticity of the descriptions put on the websites and “Guiding on Shopping” by the defendant could not be proved, which was enough to mislead the relevant public to consider that there was some relationship between the defendant and the FOXTOWN Outlet operated in Switzerland. So the actions of the defendant constituted unfair competition.
The defendant appealed. One of its grounds was that the first-instance court was wrong in holding that the appellee was the operator of the FOXTOWN Outlet in Switzerland. The appellee was engaged in development of commercial real estate properties and leasing. So the appellee had no competitive relationship with the appellant in the sense under the Unfair Competition Law, and the appellee was not the qualified plaintiff of this case.
The court of the second instance held that the evidence of the appellee could prove each other, which showed that the appellee operated its business under the brand of “FOXTOWN”, so it had the capacity to be the business operator. Secondly, as the right holder of the trademark “FOXTOWN and the particular fox figure”, the appellee operated retail business for discounted famous branded clothes in Switzerland, while the appellant also did the same in China. So they were business operators in related? markets, and were competitors with each other. Though the appellee had not officially done such business in China during the trial of the first instance, it was obvious that they had a potentially competitive relationship, as the two parties did the same business. So the appellee had the capacity to be the plaintiff. The court of the second instance held that the action of the appellant constituted unfair competition.
The plaintiff alleged that it applied to the Patent Office of the State Intellectual Property Bureau for the patent of utility model on “lifting structure for top footplates of transportation vehicles”, and the patent was successfully granted. The defendant, without consent from the plaintiff, sold five types of transportation vehicles, whose top footplates fell within the protected scope of this patent, and therefore infringed the patent right of the plaintiff. So the plaintiff claimed to the court that the defendant should stop production and sales of this patented products and make compensations to the plaintiff.
The defendant defended that the patent should not be protected by the law as it did not have patentability. The defendant had already applied to the Patent Re-examination Board for declaring the invalidity of this patent, and the application had been accepted. Secondly, the products involved in this case did not fall within the protected scope of the patent. Lastly, the economic compensations claimed by the plaintiff were in lack of factual or legal bases. Therefore, it applied to the court to reject the claims of the plaintiff.
The court determined that the patent was still within its effective period. The defendant may apply to the Patent Re-examination Board for declaring the invalidity of this patent if the defendant objected to the validity of the patent. The comparison between the products alleged to be infringing products and the independent claims of the patent shows that the products of the defendant fell within the protected scope of the patent. So it constituted infringement. Concerning the compensations, the amount claimed by the plaintiff was calculated on the basis of the profit gained by the plaintiff in selling vehicles, multiplied by 506, the sales number of the infringing vehicles. The court recognized these two numbers. However, the court held that the patented products were only the lifting structure for the top footplates. Therefore, the percentage of the value of the patented product shall be considered in calculation. Considering the effect of this patent in realizing the purpose of the transportation vehicles and the market competitive advantages of the transportation vehicles that contained the patented products, in combination with the profit gained by the plaintiff from such vehicles, the court finally decided discretionally that the profit increased from the patented products shall account for one third of the profit gained from one transportation vehicle. So the court ruled that the compensation to be made by the defendant should be one third of the claim made by the plaintiff.
The court of the first instance held that there were obvious differences between the marks used by the defendant on the Debit Card and the Chinese characters contained in the registered trademark of the plaintiff, in the ordering, structures of the figures, and the arrangement. The debit card issued by the defendant was a financial trading tool used by the defendant to provide the relevant financial service for its clients. So the debit card was only a media of services, different from the magnetic identification card used by the plaintiff for profit. Moreover, they were within different categories in the categories of international commodities and services. So they were not similar commodities and services. The action of the defendant did not constitute trademark infringement.
The plaintiff appealed, alleging that the registered trademark of the plaintiff was similar to the ancient coin figure used on the debit card of the appellee. The debit card and “magnetic identification card and coded card”, the category where the the registered trademark held by the appellant was approved to be applied, were similar commodities. The financial services provided by the appellee through the debit card constituted similar commodities and services to the commodities to which the the registered trademark held by the appellant was approved to apply.
The court of the second instance held that the magnetic identification cards themselves could not provide directly financial services, while the debit cards were formed by re-processing the magnetic identification cards. Such re-processing made the debit cards not provide the functions as magnetic identification cards or password cards for clients, but provide financial services, cutting of the particular relationship between the magnetic cards, password cards and debit cards services, which would not cause confusion among the relevant public. Therefore, the financial services provided by the appellee through debit cards did not constitute similar commodities and services to the magnetic cards and password cards, to which the registered trademark of the appellant had been approved to be applied. Therefore, the action of the appellee did not constitute infringement.
The plaintiff alleged that the patent involved in this case was similar to the design for comparison submitted by the plaintiff in the procedure of invalidity declaration. As the patent involved in this case and the design for comparison gave the same idea and impression to the general consumers, and they were used on similar types of products, which would cause confusion among consumers on the source of the products, so the patent involved in this case should be declared invalid.
The defendant defended that it made the decision according to the “Guidelines for Examination”. The subject matter, idea, source of product were not the contents that should be considered in deciding similarity of designs, neither were they in compliance with the Guidelines for Examination. Therefore, the decision on examination of declaration of invalidity was factually and legally justified and the court should reject the claims of the plaintiff.
The court held that deciding on similarity of designs not only included deciding on similarity of the figure, color and the composition of the three in the designs themselves, but also the similarity of the products themselves for such designs. The symbolic function of the designs reflected certain economic value, and the identification function on the market was more obvious as this case involes such products as labels and bottle labels. Therefore, the judgment on similarity should be made by considering comprehensively whether it would lead easily to confusion with the source of the products, from a perspective of general consumers, by reference to the relevant provisions under the Trademark Law and the Unfair Competition Law. So the court held that, by comparing the patent on the design involved in this case and the former design, it was enough to confuse with the sources of these products from the perspective of the general consumers. So similarity was established. Therefore, it was held that the patent involved in this case was invalid.
The CAAV defended that “Prime Minister Liu Luoguo” was broadcast on TV in 1994, so the claims made by the plaintiffs had exceeded the legal time limit for action. The song sung by Ma Zengfen belonged to folk works. Even if it was used, it had not distorted her image as a performer, neither had it caused any material or spiritual damages to the plaintiffs. Moreover, it could not be decided that the song used in the VCD involved in this case was sung by Ma.
The GENP defended that the current evidence could not prove that the song used in the VCD involved in this case, “Prime Minister Liu Luoguo”, was sung by Ms. Ma Zengfen.
The court held that Ma Zengfen was the singer of the song, and that “Prime Minister Liu Luoguo” used “A Lazy Man and Eggs” as the background music. Meanwhile, the contents of “A Lazy Man and Eggs” had nothing to do with the bagnio. CAAV and GENP used the song in representing the bagnio and violated the subject matter intended by the performer and distorted her image. Therefore, the court held that the defendant committed infringement and should make compensations.