“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.
Latest Laws and Regulations
§ Latest Laws and Regulations
The Regulations define several types of applicants for administrative review: The applicant of a partnership enterprise shall be the corresponding registered enterprise; the applicant of other partnership entities shall be the partners; the applicant of other entities without corporate capacity shall be the person in charge of those entities; the applicant can also be a company limited by shares if its shareholders general meeting and board of directors consider that the administrative act has violated the lawful rights of the company.
In order to ensure an easy procedure for administrative review, the Regulations provide that the administrative review organ must accept and handle the application from any citizen, legal person or other organization who considers that the specific administrative act has violated his lawful rights, except those who cannot meet the application requirements provided in the Administrative Review Law or the Regulations. If the review organ refuses to accept the application without justifications, the administrative organs at the higher level shall urge or order it to accept the application and may also, if necessary, accept the application directly.
In order to improve the method and quality of administrative review, the Regulations made the following provisions:
The Notice emphasizes the need to strictly control foreign direct investment in high-grade real estate. Foreign investors who run the business of real estate development shall be subject to the following principles for the project company:
The Notice also requires strict control of enterprises who invest in domestic real estate by return investment and foreign investors who change the actual controller to avoid the approval procedures for foreign investment in real estate. Those who remit capital abroad with relevant profits without authorization shall be liable for foreign exchange evasion and deceit. While in the Notice on the Implementation of “Regulating Access to and Administration of Foreign Investment in Real Estate Market” issued by the Office of the Ministry of Commerce on August 14, 2006, there was no clear provision on the control of return investment. That notice only requires that, where an overseas investor merges and acquires a domestic real estate enterprise by equity transfer or other means, it shall properly resettle the relevant employees, settle the bank debts and pay off the transfer price by its self-owned capital in one installment within three months after the issuance of the business license of the foreign invested enterprise.
Besides, the Notice provides that foreign investors engaged in real estate development or operation shall establish foreign invested real estate enterprises in accordance with the laws, and the Chinese parties of those enterprises shall not agree to any term on fixed return or disguised fixed return in any form.
According to the Notice, partnership enterprises can be registered at the District Administration of Industry and Commerce of municipalities directly under the Central Government or cities with districts, but special general partnership enterprises and limited liability partnership enterprises shall usually be registered at the provincial level Administration of Industry and Commerce in provinces, autonomous regions, municipalities directly under the Central Government or cities with districts. (According to “Partnership Enterprise Law”, a professional service institution, which provides its clients with paid services on the basis of professional knowledge and special skills, may set up a special general partnership enterprise.)
If the partners of the partnership enterprise involve foreign invested enterprises (excluding foreign invested investment companies), the registration authority shall refer to “Provisional Rules for Investment in China by Enterprises with Foreign Investment” (hereinafter referred to as the “Provisional Rules”). According to the Provisional Rules, a foreign invested enterprise shall meet the following requirements before making investments:
Before applying for modifying the registration, a partnership enterprise shall submit the application for modification signed by the partner executing partnership affairs or the appointed representative, or the person specified in the partnership agreement; besides, the partnership enterprise shall also submit relevant documents. For example, modification of main business premises requires the using certificate of the new business domicile; modification from general partnership enterprise to special partnership enterprise requires the professional certifications of the partners issued by the relevant government authorities or authorized organs; modifications for receiving new partners requires the qualification certificate of the new partners or the identification certificate as natural person, the partnership entry agreement as well as the certificate for the capital subscribed or actually contributed by the new partner.
“Foreign stock exchanges’ representative offices in China” as mentioned in the Measures refer to the permanent representative offices established by foreign stock exchanges inside the territory of China upon approval for engaging in liaison, market promotions, investigations and other similar non-business activities.
The Measures provide that a foreign stock exchange applying for establishment of a representative office shall meet the relevant requirements. For example, the financial supervision authority in the country or region where the applicant is located has executed a memorandum of understanding on supervisory cooperation with China Securities Regulatory Commission and keeps a good cooperative relationship with CSRC; the applicant is established upon approval or ratification of the country or region where it is located; the applicant has been established for no less than twenty (20) years and its operation is stable and standardized, and its financial situation is good, etc. One applicant can only apply for the establishment of one representative office. The application shall be accepted and decided whether to approve by CSRC. A representative office shall, within 90 days upon obtaining the approval document, go through formalities for registrations with the Administration for Industrial & Commercial as well as the tax authorities and report the relevant matters to CSRC in written form; otherwise the original approval document shall be automatically invalidated. Besides, for the modification and cancellation of the representative office, ?application to CSRC for approval shall be necessary.
The Measures also provide some limitations to such representative offices, including that the proportion of domestic residents shall not be less than 50% in the representative office; the chief representative may not concurrently assume a post in the headquarters or a regional head office or in any other commercial institution inside China. The chief representative shall always stay in the representative office to take charge of the routine work. In case the chief representative goes abroad for 30 consecutive days, he shall submit a report to the CSRC; no representative office may engage in any commercial activities or do so in a disguised form, etc.
The Ministry of Construction promulgated the “Standards for Qualifications of Construction Project Supervisory Enterprises” (hereinafter referred to as “the Standards”) on May 21, 2007.
According to the Standards, construction project supervisory enterprises can be divided into three series: integrated qualification, specialized qualification and supervisory firms. Among them, integrated qualification only includes grade A, and specialized qualification includes grade A, grade B and grade C while there is no grade for a supervisory firm.
The Standards provide detailed requirements for each qualification and define clear limitation to the business scope for enterprises with the three different qualifications. The standards for obtaining the integrated qualification is the highest of the three, which contains nine items of requirements, including that the enterprise shall be an independent legal person with a registered capital no less than RMB six (6) million Yuan; the technical director of the enterprise shall be a registered supervisory engineer and have a working experience in project construction field of more than fifteen (15) years or hold a senior title in engineering; the enterprise shall also have the specialized grade A project supervisory qualifications with in more than five project types; etc. Correspondingly, enterprises with the integrated qualification can have the broadest business scope and can undertake project supervisory tasks of construction project relating to all kinds of specialized projects as well as relevant project management and technical consulting services for construction projects.
The State Administration of Taxation also issued the “Reply of the State Administration of Taxation on the Issue of How to Pay Tax for the Sale Lease-back Business of Foreign-invested Enterprises Engaged in Real Estate Development” to Hunan Provincial Office, SAT, on May 31, 2007. The Reply pointed out that, the enterprises, which transfer its real estate such as houses or buildings developed by it by means of sale, and then lease the real estate back, whatever way they take to lease-back, shall divide the sale lease-back business into two--sale business and lease business -- and pay the tax separately. As for the definition of “transfer all or part of the real estate ownership”, it depends on whether the enterprise has transferred the rights and risks of the relevant asset by sale lease-back, instead of concerning whether the enterprise has undertaken legal right modification (such as property rights registration or transfer). The above rights and risks include the right to obtain the appreciation of the asset, bear losses from all kinds of damages (including physical damages or depreciation), the right to occupy the asset, the right to use the asset in its duration and the right to dispose of the asset.
The State Administration of Taxation promulgated, on May 30, 2007, “the Notice on the issue of Enterprise Income Tax paid by Foreign-invested Enterprises Engaged in Telecommunications” (hereinafter referred to as “the Notice”), which came into force as from the 2006 tax year.
The Notice provides regulations on four issues: the depreciation period of fixed assets; the reduction of labor cost, deduction of bonus plan cost and public relation expenses counting section.
According to the Notice, comprehensive communications towers used for transmitting signals, pipelines for placing communications cables, houses for storing equipment of communications station and other fixed assets as a whole can be regarded as the fixed assets of communications equipment and be counted by a ten-year depreciation period; the 2G communications equipment and net supporting computer systems can be shortened to a five-year depreciation period from the original seven (7) year according to the conditions of the enterprise itself.
If the enterprise takes the mode of performance-pay in its labor cost (salary and benefits etc.), the enterprise can provide the planned expenses of labor cost for the advanced payment of taxation each quarter, but it shall modify the number according to the real conditions when declaring the annual tax.
If the telecommunications enterprises have a bonus plan for their clients and give certain bonus to clients that meet the requirements, which can be changed into real objects of services, then the enterprises can only list the expenses of such bonus into the cost after the bonus has been converted.
The public relations cost of a enterprise’s branch shall be counted by branch. While calculating the total amount of tax, telecommunications enterprises shall count the public relations cost (including the cost in the enterprise) according to the following regulations: (1) For enterprises whose net income is less than fifteen (15) million Yuan, the PR cost shall not surpass 5‰; For the part exceeding fifteen (15) million, the cost shall not surpass 3‰ of that part. (2) For enterprises whose total income is less than five (5) million Yuan, the PR cost shall not surpass 1‰ of the total income; For the part exceeding five (5) million, the cost shall not surpass 5‰ of that part.
Besides, the State Administration of Taxation made a Reply to Xiamen local administration of taxation on the “Collection of Urban Land Use Tax on Foreign-invested Enterprises and Foreign Enterprises”. The Reply emphasizes that foreign-invested enterprises and foreign enterprises have been included into the category that should pay urban land use tax strictly in accordance with the “Decision of the State Council on Amending the Interim Regulations on Urban Land Use Tax”.
According to the Notice, the pharmaceutical directions and labels of all pharmaceuticals made and sold on the market after June 1, 2007(refer to the production date) shall meet the requirement of the Provisions. Besides, pharmaceutical enterprises can only apply for the modification of directions and labels to the provincial drug administration before June1, 2007. Pharmaceuticals produced before October1, 2007 can still use the original directions and labels.
The Notice also emphasizes that pharmaceutical directions, general names and product’s names shall strictly follow the provisions. No word, mark or other information on the directions and labels shall extend or hint the curative effect of the drug, misleading the consumers. Pharmaceutical directions and labels without approval shall not be used.
According to the Regulations, one kind of health food can only have one name, which is composed of a brand name, a general name and an attribute name. If an applicant applies for several health food made up with the same list of ingredients, those health food shall have the same brand name and general name.
As to the brand name and the general name, the Regulations provides seven (7) general requirements: including, (1) No word indicating or hinting the effectiveness of the nourishment shall be used; No function name or name with similar pronunciation or form shall be used. No words exaggerating the effectiveness or relating to function or misleading the consumers shall be used; (2) No deceptive, exaggerating or absolute words shall be used; (3) No specific term or local dialect that can not be understood by the consumers shall be used; (4) No person’s name or place’s name shall be used (except for registered trademarks).
The Regulations also provide special requirements for using registered trademarks as product’s brand name: The registered owner of the trademark shall be the same as the applicant for the registration of health food; the scope of using the registered trademark shall include the types of the registered products.
§ IP Cases
The court of the first instance ruled that: the registered trademark No. 3179397 (“lan se feng bao”, blue storm) was a combination of characters, phonetic letters and figures, which was approved on Category No. 32, including malt beer, beverage and coke. Though Pepsi used “Lan Se Feng Bao” on its bottle labels and caps, the trademark was used together with Pepsi’s theme of promotion, basic color of blue, trademark of Pepsi Cola, rules of the activity and other factors, and because of the great popularity and striking features of Pepsi’s trademark, it is easy for consumers to recognize the source of the products. Thus the use of “Lan Se Feng Bao” in Pepsi’s products belonged to decorations of products, instead of trademark use. Besides, “Lan Se Feng Bao” did not mislead the public. Therefore, the judgment of the first instance affirmed that the use of “Lan Se Feng Bao” by Lianhua Huashang and Pepsi did not constitute infringement.
The plaintiff Lanye appealed.
Lanye’s grounds were that the use of “Lan Se Feng Bao” by Pepsi included direct use in the names and decorations and constituted the use of trademark and that Pepsi’s activity could be regarded as “reverse confusion” and had constituted infringement.
Lianhua Huashang defended that it had submitted the purchase contract and value- added tax invoices between Lianhua Huashang and Pepsi, which can prove that the Pepsi’s products they were selling were legally obtained. Thus they shall not be liable for any compensations.
Pepsi defended that its “Lan Se Feng Bao” was created by itself for the theme of the promotion activity and had no relations with Lanye’s “Lan Se Feng Bao”, and to the phrase of “Lan Se Feng Bao” was not used as a trademark. Besides, Pepsi did not use the phrase with the intention of confusion.
The court of the second instance held that, firstly, Pepsi had injected huge capital and much time to carry out the promotion activities for “Lan Se Feng Bao” related products in China, and thus the trademark “Lan Se Feng Bao” had already rooted a deep impression in consumers’ mind. Especially the behavior that “Lan Se Feng Bao” had been highlighted on posters and solely used on caps of its products gave full play to the function of recognizing the product’s source. In fact, Pepsi has made “Lan Se Feng Bao” its trademark through a series of promotional activities. Besides, Pepsi not only used “Lan Se Feng Bao” in its posters, shelves and other advertisements, but also directly marked the trademark on the decorations of its coke. The above behavior obviously involved the use of “Lan Se Feng Bao” as a trademark.
Secondly, the trademark of “Lan Se Feng Bao” registered by Lanye was composed of characters, phonetic letters and figures, with the characters as its outstanding part. Compared with Pepsi’s “Lan Se Feng Bao”, the two were the same in character’s shape, pronunciation and meaning.
Thirdly, the use of “Lan Se Feng Bao” by Pepsi had misled the public in the source of “Lan Se Feng Bao” products. The judgment of confusion included both of the following conditions: 1) the public mistakes the products of the later trademark user as products from the trademark owner; 2) the public mistakes the products of the registered trademark owner as products of the later trademark user. In this case, Pepsi has made its “Lan Se Feng Bao” a very outstanding trademark with good market reputation through a series of promotion activities. When Lanye used its legally registered trademark “Lan Se Feng Bao” on its products, consumers tended to misunderstand and relate their products to Pepsi, and thus Lanye’s intention to seek market reputation and to expand development by the trademark of “Lan Se Feng Bao” had been depressed and the economic losses it suffered was obvious.
Finally, the trademark “Lan Se Feng Bao” registered by Lanye can be used for Category No. 32, including malt beer, beverage and coke. Though Lanye actually used the registered trademark only in its beer, whether Lanye used “Lan Se Feng Bao” in coke should not affect its exercise of its right to the trademark. Besides, the constitution of infringement did not require a subjective fault on the part of the infringer. Therefore the court of the second instance ruled that the use of “Lan Se Feng Bao” by Pepsi and Lianhua Huashang constituted infringement and Pepsi should compensate three (3) million Yuan to Lanye.
The plaintiff alleged that it was the design patent owner of “mobile flash drive (2)”. In early 2005, the plaintiff found a great many mobile flash drives marked “Tsinghua Unisplendour” pumping into the market. Those drives shared exactly the same outside design as the plaintiff’s patent and had the defendant’s anti-fake labels on the packages. Meanwhile, on the website of the defendant, there was introduction of such drives. So the plaintiff claimed that the defendant manufactured and sold, without authority, drives designed in the same way as the plaintiff’s patent and thus claimed infringement by the defendant.
The defendant defended that the claimed infringing products all came from other sellers and it had nothing to do with the sales of such products. Besides, the anti-fake mark on the claimed infringing products was different from the mark filed with Beijing Anti-Fake Association by the defendant, and thus the claim by the plaintiff was not established that the claimed products were manufactured by the defendant according to the anti-fake mark.
The court held that on the U drive products and packages bought, with the buying process notarized, there was such information as “manufactured under the supervision of the defendant”, trademark, telephone number, anti-fake mark and website related to the defendant. On the website downloaded by the plaintiff, with the downloading process notarized, there were also pictures of the claimed products and all rights of the Website were reserved by the defendant. Though the defendant submitted the “Unisplendour Brand Franchise Agreement” and “letter of authorization”, the defendant failed to fulfill its obligation to supervise the franchisee after receiving the franchise fees, and left alone the occurrence of infringement and thus the defendant should be liable for the result due to its negligence. The court affirmed that the behavior of the defendant constituted infringement.
Upon the application raised by Rong Bao Zhai to cancel the registration of the plaintiff’s trademark “Rong Bao Zhai and Pattern”(hereinafter referred to as the “disputed trademark”), the defendant made the decision No. 3466 in 2006 (hereinafter referred to as the “decision”), which affirmed that Rong Bao Zhai gained the approval on the registration of the trademark “Rong Bao Zhai” in 1991 on Category No. 16, including xuan paper, postcards and printed publication. Though Rong Bao Zhai did not apply for renewal of the trademark, it applied for the registration of “Rong Bao Zhai” as the trademark (hereinafter referred to as “cited trademark”) on April 26, 2001 for its products in Category No. 16 including Chinese brush and xuan paper and thus the exclusive right to use the trademark of Rong Bao Zhai on products of Category No. 16 could be deemed as renewed. As a time-honored brand and trademark, “Rong Bao Zhai” enjoyed great popularity and could be called a famous brand. Though the disputed trademark and the cited trademark belonged to different sections of Category No. 16, Wuhan Rong Bao Zhai is engaged in the same business as Rong Bao Zhai, and due to Rong Bao Zhai’s long history and the great reputation of its trademark “Rong Bao Zhai”, the disputed trademark registered by Wuhan Rong Bao Zhai tended to mislead the public. Therefore the decision ruled that the trademark No. 1745724 “Rong Bao Zhai and pattern” registered by Wuhan Rong Bao Zhai on Category No. 16 including art paper should be canceled.
The plaintiff did not accept the decision and appealed.
The plaintiff alleged that the decision did not comment on whether the disputed trademark constituted copy and imitation of the cited trademark. The cited trademark was registered later than the disputed trademark and Rong Bao Zhai failed to provide enough evidence to prove that its cited trademark belonged to “famous brands”. The defendant lacked legal basis in canceling the disputed trademark after confirming that the cited trademark was a “famous brand”. Even if the cited trademark now met the standard of a famous brand, it cannot be proved that it met the legal requirements for a famous brand when the disputed trademark was being registered.
The defendant defended that the cited trademark was a copy and imitation of the disputed trademark. The legal right of Rong Bao Zhai to the trademark “Rong Bao Zhai” for its products on Category No. 16 continues to be effective and the cited trademark met the legal standard of a famous brand. The disputed trademark registered by the plaintiff can easily mislead the consumers to regard the products and services as those from Rong Bao Zhai. Therefore, the decision is right.
The court held that, firstly, the plaintiff and Rong Bao Zhai did not submit, in the administrative proceedings, the evidence that they provided in this lawsuit, and thus those evidence should not be considered by the defendant while making the decision No. 3466 and they should not be considered and used as facts to judge whether the defendant had made a reasonable decision. Secondly, ever since its establishment, Rong Bao Zhai had enjoyed a history of more than one hundred years together with a high reputation. Before 1900, Rong Bao Zhai did not make clear the use of “Rong Bao Zhai” as an enterprise name or an unregistered trademark; while the reputation accumulated in “Rong Bao Zhai” actually exerted influence on the two aspects. Though the effectiveness of the registered trademark No. 565836 was not extended, Rong Bao Zhai registered the cited trademark for products in the same category. Therefore, the legal effectiveness of the registered trademark “Rong Bao Zhai” for products in Category No. 16 shall still continue. As the registered trademark No. 565836 and the cited trademark shared the same range of products with Rong Bao Zhai’s enterprise name and unregistered trademark, the reputation gained by the enterprise name and its unregistered trademark shall be given to the above registered trademarks. Therefore, the defendant had a factual and legal basis to affirm that the cited trademark was a “famous brand”, and thus the behavior of the plaintiff to register the disputed trademark constituted copy and imitation of Rong Bao Zhai’s cited trademark, and can mislead the public. Therefore the defendant’s decision was right.
The court of the first instance ruled that the valves in the claimed infringing products came from No.1 HCP and the trademark “SY1” on the valves were marked by No.1 HCP. As Yeyi assembled the valves from No.1 HCP to make hydraulic valves, there must be the trademark “SY1” on the valves. Thus the claim by No. 1 HCP against Yeyi for manufacturing and selling valves infringing the registered trademark “SY1” was unreasonable and could not be established.
No.1 HCP did not accept the judgment of the first instance and appealed.
No.1 HCP alleged that the appellant was an enterprise set up after the reform in 2006 and it shall not bear the responsibility of the behavior conducted by the enterprise before the reform; Yeyi marked its own name on the products, packages and nameplates after assembling the purchased core parts which were marked by the appellant’s trademark, without indicating that the core parts were produced by the appellant; thus Yeyi’s behavior may mislead the consumers; Besides, no evidence can prove that the appellant allowed Weiyan Company to sell its registered valves to others for assembly; Moreover, Yeyi knew clearly when undertaking infringement and the infringement was intentional.
Yeyi responded that the judgment of the first instance was correct, and that the reasons for the appellant’s claim were not justified. Yeyi requested the court to reject the claim and sustain the original judgment.
The court of the second instance held that the appellant’s legally obtained registered trademark shall be protected by law and shall not be infringed by others. However, the materials and value-added tax invoices provided by Weiyan Company indicated that the claimed infringing valves were purchased legally by Yeyi. Yeyi used the legally bought valves as part of its hydraulic valves and marked its own name, address etc. on the products after assembling. Such act did not infringe the appellant’s right to the trademark. Besides, the relevant consumers might find the appellant’s trademark on the valves used in the claimed hydraulic valves and recognized the fact that those valves were from the appellant, which would not result in misleading. Besides, the appellant should have known that the claimed valves used to pay a debt might be used in manufacturing hydraulic valves. Therefore, the appellant’s act indicated that it had allowed others to use the legally obtained valves in production. Even if this misled the consumers, it was caused by the appellant itself. As the appellee had marked its company’s name and address on the assembled products, the relevant consumers would not confuse the major source of the entire hydraulic valve. Therefore, the court affirmed that the infringement by Yeyi was not constituted.
The court of the first instance held that Newrun alleged that W-infinity for providing ring tones service of Newrun’s recorded works without authorization. W-infinity defended that the claimed recorded works had been authorized by the third party Longyue, and Longyue’s relevant right came from Newrun’s authorization. While Newrun claimed that the scope of authorization in the agent agreement executed with Longyue did not include the three recorded works it made after the execution of the agreement; Longyue responded that the agent agreement contained copyright of all Newrun’s music works, including the three recorded works. Considering that there were Arbitration Terms in the agent agreement signed by Newrun and Longyue, and that neither party had applied for arbitration to the arbitration institute, the court cannot decide that the exact scope of authorization of the agent agreement and the evidence provided by Newrun was not enough and should not be supported.
Newrun did not accept the judgment of the first instance and appealed.
Newrun alleged that W-infinity used the recorded works whose copyright belonged to Newrun. Though W-infinity obtained the authorization of Longyue, Longyue only had the authorization from Newrun to use the copyright of its “music works”. Therefore, W-infinity used the claimed recorded works without the legal authorization of Newrun, which constituted infringement.
W-infinity and Longyue accepted the judgment of the first instance.
The court of the second instance held that, as Newrun claimed against W-infinity for providing ring tone services of the claimed recorded works without authorization and infringing the copyright of Newrun, while W-infinity got the authorization from Longyue to use the claimed recorded works and Longyue got the authorization from Newrun through “Agent Agreement on Music Copyright for Mobile Data Service”. Therefore, the case is surely related to whether the agreement between Longyue and Newrun included the recorded works of the claimed three songs. Since there were Arbitration Terms in the agreement, and neither party had applied for arbitration to the arbitration institute, the court cannot decide the scope of authorization in the agreement. Thus the claim raised by Newrun could not be supported and the act of the two appellees did not constitute infringement.