Haworth & Lexon Law Newsletter
No.3 2008 (Total:No.77) April. 20th, 2008
Edited by Haworth & Lexon
“Haworth & Lexon Law Newsletter ” is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, E-commerce, 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
Chambers Yang Was Invited as Chairman of the Second China Foreign Investment’s New Environment Summit
Seminar on “IPO in Australia”, Sponsored by Haworth & Lexon Jointly with TGB, was Successfully Held at Jinjiang Hotel, Shanghai on April 2
Latest Laws and Regulations:
Administrative Measures for Design Bidding of Construction Project Schemes
Measures for Verification Collection of Enterprise Income Tax (for Trial)
Catalogue of the Ministry of Commerce of Currently Effective Rules and Regulations
Notice on Relevant Issues Concerning the Pilot Implementation of Archival Filing of Taxation on Outbound Payments for Trade in Services”
Administrative Measures for Debt Financing Instruments of Non-Financial Enterprises in the Inter-bank Bond Market
Standards for Jurisdiction over Civil and Commercial Cases of the First Instance of Superior People’s Courts and Intermediate People’s Courts across China”
Announcement on Exemption of Export Customs Duty of Certain Products that Enter Special Customs Supervised Zones”
Notice on Standardizing the Administration of Domestic Financial Lease of Vessels”
The Supreme People’s Court held that the chocolate package of FERRERO was package and decoration of particularity used on famous products, and thereby held that the use of Jinsha by Mentresor company had constituted unfair competition.
A Publisher was held tortious for not performing the duty of reasonable Examination.
A Mobile Phone Maker shall have the duty of due Supervision for any Possible Infringement that may occur in the Sales part of its products.
The Disputed Product was constructed to have Constituted Infringement as the Alleged Infringing Person Rejected the Evidence Preservation.
Users of Musical Works Shall Prove that the CMA is Authorized to grant them the Use of such Works.
News of Haworth & Lexon
Chambers Yang Was Invited as Chairman of the Second China Foreign Investment’s New Environment Summit
Chambers Yang was invited as Chairman at “the 2nd China Foreign Investment’s New Environment Summit 2008”, which was held in Beijing Kempinski Hotel from April 7 to April 8, 2008. It was the second time for Chambers Yang to serve as Chairman of this summit. He was also the chairman of the first summit and had delivered a speech on foreign M&A.
At this year’s summit, Mr. Hu Jingyan (Director of Department of Trade of Services, Ministry of Commerce), Mr. An Fengming (Director of Economic Research Center of State-owned Assets Supervision and Administration Commission), Mr. Xu Weigang (Chief of Regulation Division, State Administration of Foreign Exchange) respectively addressed speeches on new trends of policies concerning China’s use of foreign investment, M&A of state-owned enterprises by foreign funds and foreign exchange control, etc. Mr. Yang Yuanwei (Director of Tax Policy & Regulation Department, State Administration of Taxation), Mr. Wang Donghong (Director of Department of International Cooperation, Central Administration of Customs), Mr. Liu Huan (Vice President of Institute of Finance and Public Management, Central University of Finance and Economics), Mr. Guo Xiangping (Deputy Chief of Import and Export Division, State Administration of Taxation), Mr. Li Ming (Deputy Director of Scientific Research Institute, Ministry of Finance) and accountants from KPMG respectively introduced the adjustments on China’s legal policies concerning enterprise income tax, customs duty, VAT, export tax refund, reform on accounting system, transfer pricing and other topics. Besides, representatives from relevant specialized institutions provided information of the Labor Contract law, the Patent laws and HR management.
The Seminar on “IPO in Australia”, Sponsored by Haworth & Lexon Jointly with TGB, was Successfully Held at Jinjiang Hotel, Shanghai on April 2
On April 2, 2008, Shanghai Haworth & Lexon Law Firm, jointly with Australian Tindall Gask Bentley Law Firm, successfully held a seminar of “IPO in Australia: A New Option for Chinese Companies” at Shanghai Jinjiang Hotel.
The seminar was divided into two sessions. In the morning session, the speakers delivered their keynoted speeches; in the afternoon, interactive discussions and communications were conducted between the attendants and the speakers.
At the beginning, Mr. Sean Yuan, a senior partner of Haworth & Lexon, expressed his appreciation to the invited speakers, the Deputy Director of the Bureau of Justice in Luwan District, the Director of Lawyer Administration Section and other guests presented at the seminar. As a fast-growing law firm whose founding partners had all studied in Australia, the past achievements, present status and future development of Haworth & Lexon are inseparable from the support of both domestic and foreign institutions, enterprises, clients and government authorities. Haworth & Lexon would make great endeavors to help more qualified excellent Chinese enterprises issue stocks and go public abroad.
At the seminar, Mr. Bredan Connel (Chairman of TGB), Mr. Chris Whiteman (senior manager of Taylor Collison Stockbrokers), Mr. Chris Parkinson and Kenneth Yeo (Director of Grant Thornton), Mr. Jan Drewery-Clark (project manager of Mont Campbell) and Mr. Bailey Xu (partner of Haworth & Lexon) respectively delivered their speeches on legal requirements and main procedures of listing in Australia, communications with investors, road show, IPO and follow-up financing, accounting rules and auditing procedures, business migration requirements for investors, restructuring of domestic companies, government approval procedures, applicable Chinese laws and solutions, etc.
In the afternoon session, the attendants had interviews and discussions with the relevant institutions and persons on the topics they were interested in. Experts from TGB, Grant Thornton, and Taylor Collison gave detailed answers to such questions as time, expenses, finance and audit issues of listing, and relevant Chinese laws and government administration. Regarding the common issues about the reconstruction of corporate institutions, government examination and approval procedures and applicable Chinese laws, Mr. Bailey Xu from Haworth & Lexon and other attending lawyers have provided very detailed information.
As reflected in the occasion, many small and medium enterprises were quite interested in listing in Australia. Representatives from nearly forty enterprises and investment institutions at home and abroad had attended the Seminar. Meanwhile, presses such as First Financial Daily, Xinmin.cn, China Business Focus, International Market Post, Hangzhou Daily had also attended the Seminar.
Please refer to the following websites for reports on this Seminar published by Xinmin.cn:
[Exclusive] Chairman of TGB: Huge Advantages for Chinese Enterprises to Go Listing on the ASX, with 1 Year Preparation
[Exclusive] Chairman of TGB: IPO Procedures in Australia for Chinese Enterprises
[Exclusive]Taylor Collison Stockbrokers: Difficult to Finance in Australia during Next 6 Months
Latest Laws and Regulations
Administrative Measures for Design Bidding of Construction Project Schemes
The Ministry of Housing and Urban-rural Development promulgated on March 21, 2008 the “Administrative Measures for Design Bidding of Construction Project Scheme” (hereinafter, the “ Measures”), which had came into force on May 1, 2008.
The Measures expressly divided design bidding into two types, namely, the design bidding of conceptual construction project schemes and the design bidding of implementation construction project schemes, which shall be explicitly specified in the invitation announcement or letter with relevant design fees for the winning bidder.
The Measures restrict the subject qualification as a bidder, and particularly specify that domestic bidder shall not be excluded in the case of international bid invitation.
The Measures also provides the principles and standards of tender evaluation committee which requires consideration of technical regulations and standards, social benefits, economic benefits, environmental benefits, safety and feasibility of the design, rationality of the investment estimate, etc.
As to large-scale construction projects (refer to office buildings, commercial buildings, tourism buildings, buildings used for scientific, educational and cultural purposes, buildings for communications and transportations whose building area is above 20,000 square meters), the Measures especially provide that (1) the bid invitation announcement shall be published on designated media at national level; (2) pre-review on qualification may be conducted but the bid inviter shall not exclude potential bidders; (3) as to large-scale public construction projects invested by government or state-owned funds, bid inviters shall clarify in the bid invitation documents that the design bids shall include specialized reports concerning usage and function, construction energy saving, project costs, and operational cost, etc; (4) the compilation of conceptual design bidding documents shall take no less than 40 days; (5) the bid evaluation committee shall consist of no less than 9 experts, including experts in environmental protection, energy saving and fire fighting; (6) if any stipulated special condition appears, the bid inviter may conduct specialized technical demonstration concerning planning, safety, technology, economy, structure, environmental protection, energy saving and other aspects.
The Measures also concerns issues involving intellectual property rights. The tenderee shall protect the intellectual property rights of bidders and any bidder owns the authorship (copyright) of its design. The tenderee shall not transfer the design submitted by the bidder to a third party or use such design for construction projects other than those stated in the bidding unless otherwise consented by the bidder in writing..
Measures for Verification Collection of Enterprise Income Tax (for Trial)
The State Administration of Taxation promulgated on March 6, 2008 the “Measures for Verification Collection of Enterprise Income Tax (for Trial)” (hereinafter, the “Measures”)
The Measures shall apply to all taxpayers as resident enterprises, including domestic enterprises and foreign-invested enterprises.
Where a taxpayer is under any of the following 6 circumstances, it shall be subject to verification collection of enterprise income tax: (1) it is not requested to establish account books under relevant laws and administrative regulations; (2) It fails to establish account books while requested by the relevant laws and administrative regulations; (3) It illegally destroys the account books or refuses to provide tax paying references; (4) It has established account books but it is difficult to make an audit because the accounts are in disorder or the cost references, income vouchers and expenditure vouchers are incomplete; (5) It fails to file a tax declaration for a tax obligation within the prescribed time limit and refuses to file a tax declaration even after the tax organ orders it to do so within a time limit; or (6) The tax calculation basis is obviously too low without any due reason. The tax organ will, on the basis of the concrete circumstance of a taxpayer, verify the taxable income rate or payable amount of income tax of a taxpayer who is subject to such verification collection.
According to the Measures, if a taxpayer is subject to the verification of taxable income rate, the competent tax organ may, depending on the payable tax amount of the taxpayer, determine that the taxpayer should prepay the tax on a monthly basis or on a quarterly basis, and make final settlement and payments of the tax by the end of each year. The taxpayer shall calculate the actual payable tax amount for the tax period at the taxable income rate and make a prepayment. If a taxpayer is subject to the verification of taxable income, before the payable income tax amount is decided, the taxpayer may make a prepayment that amounts to 1/12 or 1/4 of the taxable income of the previous year, or make prepayments through an approach approved by the competent tax organ on a monthly or quarterly basis. After the taxable income is decided, the monthly or quarterly payable tax amount for the subsequent months or quarters shall be decided by equally dividing the balance after deducting the taxable income amount prepaid for the current year. After the end of a taxation year, if the actual payable tax amount is lower than the verified amount, the overpaid amount shall not be returned and if the actual payable tax amount exceeds the verified amount, the difference shall be made up.
The Measures cancel the provision in the previous version of the Measures that an enterprise subject to verification collection of enterprise income tax “shall not enjoy any preference policy for enterprise income tax”.
“Catalogue of the Ministry of Commerce of Currently Effective Rules and Regulations”
The Ministry of Commerce promulgated on March 6, 2008 the “Catalogue of the Ministry of Commerce of Currently Effective Rules and Regulations”. The Catalogue listed in chronological sequence a total of 172 rules and regulations, which have been promulgated by the Ministry of Commerce from 1990 till now and are presently in force.
For details please refer to http://www. gov.cn/zwgk/2008-04/08/content 939567.htm
“Notice on Relevant Issues Concerning the Pilot Implementation of Archival Filing of Taxation on Outbound Payments for Service Trade”
The State Administration of Foreign Exchange promulgated on March 28, 2008 the “Notice on Relevant Issues Concerning the Pilot Implementation of Archival Filing of Taxation on Outbound Payments for Service Trade” (hereinafter, the “Notice”).
According to the Notice, from April 1, 2008, the archival filing of taxation prior to the outbound payments for service trade shall be implemented for trial in such six regions as Tianjin, Shanghai, Jiangsu, Sichuan, Fujian and Hunan. When a domestic institution registered in a pilot region (hereinafter referred to as domestic institution) handles an outbound payment for service trade which is equivalent to an amount of more than US$ 50,000 at a designated foreign exchange bank (hereinafter, the “bank”) in a pilot region, it shall, in advance, file for archival purpose with the competent state taxation authority within the jurisdiction with the photocopies of relevant contracts, fill out and submit the “Table of Archival Filling of Taxation on Outbound Payment for Service Trade for Domestic Institutions”; such filing procedure is not requested for outbound payments for service trade which is equivalent to the amount of not more than US$ 50,000. The competent state taxation authority, after verifying the “Table of Archival Filing” with the photocopies of relevant contracts, shall draw up a serial number for the “Table of Archival Filing”, and shall then return the original and one photocopy of the “Table of Archival Filing” to the domestic institution. Finally, the domestic institution may go though relevant foreign exchange payment formalities at banks with the original of the “Table of Archival Filing” in place of the vouchers of taxation as prescribed by the present provisions.
When foreign exchange shall be paid for many times under the same contract, the domestic institution shall go through formalities of archival filing of taxation prior to each payment in foreign exchange, but only needs to submit the photocopies of contracts to the competent state taxation authority when it files for archival purpose for the first payment in foreign exchange.
“Administrative Measures for Debt Financing Instruments of Non-Financial Enterprises on the Inter-bank Bond Market”
The People’s Bank of China promulgated on April 9, 2008 the “Administrative Measures for Debt Financing Instruments of Non-Financial Enterprises on the Inter-bank Bond Market” (hereinafter, the “Measures”)
The term “debt financing instruments of non-financial enterprises” refers to the valuable securities issued by non-financial enterprises with the status of a legal person on the inter-bank bond market with the stipulation of paying principals and interests within a certain time limit. Issuance of debt financing instruments requests registration at the National Association of Financial Market Institution Investors (NAFMII). NAFMII exercises self-disciplined administration over the issuance and trading of debt financing instruments in accordance with the Measures and relevant provisions of the People’s Bank of China.
The Measures provide obligations of each party to the issuance of debt financing instruments of non-financial enterprises: (1) The enterprise shall disclose information on the inter-bank bond market. (2) Underwriting institutions, credit rating agencies, certified public accountants, attorneys and other professional institutions and persons shall perform duties with due diligence, strictly abide by the norms of practice and professional ethics, and fulfill obligations in accordance with the relevant legal provisions and stipulations. (3) Investors of debt financing instruments shall judge and assume investment risks on their own. (4) The National Inter-bank Funding Center (NIFC) is in charge of the daily monitoring over the trading of debt financing instruments, and shall summarize the trading situation of debt financing instruments every month and file a report thereon with the NAFMII. (5) China Government Securities Depository Trust & Clearing Co., Ltd. is in charge of the daily monitoring over the registration, escrow and clearance of debt financing instruments.
“Standards for Jurisdiction over Civil and Commercial Cases of the First Instance of Superior People’s Courts and Intermediate People’s Courts across China”
The Supreme People’s Court promulgated on March 31, 2008 the “Standards for Jurisdiction over Civil and Commercial Cases of the First Instance of Superior People’s Courts and Intermediate People’s Courts of All Provinces, Autonomous Regions and Municipalities Directly under the Central Government across China” (hereinafter, the “Standards”), which came into force on April 1, 2008. The Standards clarify the acceptance of civil and commercial cases of the first instance of superior people’s courts and intermediate people’s courts of all provinces, autonomous regions and municipalities directly under the central government.
The Standards provide different acceptance standards and jurisdiction for superior people’s courts in different regions: (1) Guangdong Province has the jurisdiction over the following three kinds of cases: a case with the subject matter of action at a value of more than 300 million Yuan and a case where the place of domicile of one party is outside its territorial jurisdiction or where a foreign, Hong Kong, Macao or Taiwan element is involved with the subject matter of action at a value of more than 200 million Yuan; a case of great influence across the province; and a case that is deemed to be accepted by Guangdong Higher People’s Court. (2) Higher people’s courts in Beijing, Jiangsu Province, Zhejiang Province, etc. have jurisdiction over a civil or commercial case of the first instance with the subject matter of action at a value of more than 200 million Yuan, and the trial of first instance of a civil or commercial case where the place of domicile of one part is outside its territorial jurisdiction or where a foreign, Hong Kong, Macao or Taiwan element is involved with the subject matter of action at a value of more than 100 million Yuan. (3) Shanghai Higher People’s Court have jurisdiction over the trial of first instance of a civil or commercial case with the subject matter of action at a value of more than 200 million Yuan, and the trial of first instance of a civil or commercial case where the place of domicile of one party is outside its territorial jurisdiction with the subject matter of action at a value of more than 100 million Yuan or the trial of first instance of a civil case where a foreign, Hong Kong, Macao or Taiwan element is involved with the subject matter of action at a value of more than 100 million Yuan. (4) Higher people’s courts in Fujian, Hubei, Liaoning, Heilongjiang, jilin, etc have jurisdiction over the trial of first instance of a civil or commercial case with the subject matter of action at a value of more than 100 million Yuan, and the trial of first instance of a civil or commercial case where the place of domicile of one party is outside its territorial jurisdiction or where a foreign, Hong Kong, Macao or Taiwan element is involved with the subject matter of action at a value of more than 50 million Yuan; etc. Besides, intermediate people’s courts of all provinces, autonomous regions and municipalities directly under the central government have different standards of jurisdiction, which shall be decided for practice according to the Standards.
“Announcement on Exemption of Export Customs Duty for Certain Products that Enter Special Customs Supervised Zones”
The General Administration of Customs promulgated on March 31, 2008 the “Announcement on Exemption of Export Customs Duty for Certain Products that Enter Special Customs Supervised Zones” (hereinafter, the “Announcement”), which came into force upon its promulgation.
For domestic devices outside the special zone that enter such area for constructing the special zone and enterprise workshops, they belong to materials for infrastructure construction that shall not receive export tax refund or shall be imposed with export duties. Therefore, upon entry, those products shall not obtain export tax refund. The customs shall handle formalities for registration without charging export duties. However, such materials for infrastructure construction shall not be exported. If they are not consumed in the area, they shall be withdrawn under the supervision of the customs. If such products are transported outside the area but within the territory of China, formalities of customs declaration and duty payment shall be followed according to relevant provisions for the customs’ administration on special customs supervision.
For enterprises in processing areas which have bonded processing functions, bonded port areas, comprehensive bonded areas, Zhuhai-Macao Cross-border Industrial Zone (Zhuhai Park) and China & Kazakhstan Horgos International Border Cooperation Center, if they purchase raw materials for manufacturing products to be exported (please refer to the appendix of the announcement for the list) in China (outside such areas), they shall be exempted from export duties upon entry. Before the substantial processing, the above raw materials shall not be transferred or resold to non-production enterprises (such as bonded logistics, storage and trading enterprises), in the areas or directly be brought abroad or outside such areas in the bonded manner; otherwise import duties and VAT shall be imposed on such raw materials according to regulations.
If an enterprise inside an area under special customs supervision purchases any raw materials (provided in the Announcement) from an enterprise outside such area but within the territory of China, the enterprise outside such area shall, holding the formal purchase contract with the enterprise inside the area, apply for export declaration to the customs administration in such area, and shall indicate in the remark column on the export declaration bill the serial number of documentation that can certify the customs’ approval to exempt export duties. Then the enterprise inside the area shall be responsible to handle filing formalities of the entry.
The duty exemption in the Announcement has partial retroactive force: During the period from February 15, 2008 to the promulgation date of the Announcement, if export duties are charged on products which are in consistence with standards of export customs duty exemption, such duties may be refunded after proper application according to the Announcement.
Notice on Standardizing the Administration of Domestic Financial Lease of Vessels
The P.R.C. General Office of the Ministry of Transport promulgated on March 28, 2008 the “Notice on Standardizing the Administration of Domestic Financial Lease of Vessels” (hereinafter, the “Notice”).
The Notice require that a lessor engaging in the activities of domestic financial lease of vessels acquire legally a qualification for operating financial lease as approved by the relevant competent state authority, and a lessee shall acquire a qualification for operating domestic waterway transportation as approved by the competent transport department. A lessor and a lessee shall execute a contract on financial lease of vessels according to the relevant provisions of the state.
If the enterprise economic nature of a lessor engaging in the domestic financial lease of vessels belongs to the “three types of foreign-funded enterprises”, the proportion of the foreign investment shall not be more than 50%. If a lessee leases a vessel from any of the “three types of foreign funded enterprises” to engage in the domestic waterway transportation in the manner of financial lease, the lessee shall obtain a prior approval of the Ministry of Transport.
Where a vessel is newly built or purchased in the manner of financial lease, the owner shall be the lessor of the vessel in the financial lease, the operator shall be the lessee of the vessel in the financial lease, and the lesser and the lessee shall handle registration formalities according to a relationship of bareboat charter.
To build a new vessel within China or import a vessel for use in the domestic waterway transportation in the manner of financial lease, the lessee shall apply for new transportation capacity formalities with the relevant competent transport department according to the relevant provisions before building or importing the vessel (a passenger vessel or vessel carrying hazardous liquid goods shall obtain the approval documents on new transportation capacity, while a common cargo vessel shall obtain the registration certificate of new transportation capacity); where an existing vessel qualified for operations in the domestic waterway transportation is purchased for use in the domestic waterway transportation in the manner of financial lease (excluding the circumstance where the lessor or the lessee belongs to the “three types of foreign-funded enterprise), the prior formalities for new transportation capacity need not be handled.
The Supreme People’s Court held that the chocolate package of FERRERO was package and decoration of particularity used on famous products and thereby held that the use of Jinsha by Mentresor company had constituted unfair competition
The Supreme People’s Court made a judgment of retrial on March 24, 2008, in the case of the retrial applicant (the defendant in the first instance and the appellee in the second instance) Mentresor (Zhangjiagang) Food Co., Ltd. (hereinafter, “Mentresor”) vs. the retrial respondent (the plaintiff in the first instance and the appellant in the second instance) FERRERO.SpA (hereinafter, FERRERO), with Tianjin Economic & Technology Development District Zheng Yuan Sales Co., Ltd. as the defendant in the first instance, regarding unfair competition, and the judgment affirmed that the behavior of the defendant constituted unfair competition but changed the compensational amount to RMB 500,000 Yuan.
FERRERO filed an action to Tianjin No.2 Intermediary Court, claiming that, since 1984, it had been selling chocolate products in Chinese market through China National Cereals, Oils and Foodstuffs Import & Export Corporation (hereinafter, “COFCO”), and currently the product had a big market share. The product was renowned around the world as well as in China. For years the product had maintained its specific pack and decorations and thus was quite famous among consumers. Mentresor had long been falsifying this product by using packs and decorations identical or similar to those specific ones of FERRERO without FERRERO’s consent, so as to mislead consumers. Mentresor’s behavior of falsification and Zheng Yuan’s behavior of selling falsified products had infringed upon the legal rights of consumers and caused major economic losses to the plaintiff.
Mentresor defended that the FERRERO’s product involved in this case was not well-known to the relevant public in China. On the contrary, Jinsha chocolate produced by Mentresor enjoyed high popularity among consumers in China and had obtained awards for several times. The packs and decorations FERRERO claimed for protection were common ones used for the same kind of chocolates at home and abroad, which had no originality. The packs and decorations applied to Jinsha chocolate produced by Mentresor were developed jointly by Mentresor’s own staff and the professional designers from Zhangjiagang Art & Design Printing Factory, and were not falsification of other’s already existed packing and decorations. Only a general attention would prevent common consumers from being confused.
Tianjin No.2 Intermediary People’s Court held in the first instance that a famous commodity referred to a commodity that enjoyed certain popularity in the market and was known to the relevant public. Whether the commodity was famous or not and how famous the commodity was shall be affirmed according to the specific conditions of its market. The way of packing used for FERRERO ROCHER chocolate was not exclusively owned by FERRERO. Such pack was commonly used and shall not be protected. However, the pack used for FERRERO ROCHER chocolate had already been used before entering the domestic market, and had prominent features of recognizing, beautifying and distinguishing the commodity, and thus should have constituted FERRERO’s specific decorations. Mentresor’s Jinsha chocolate began to use such decorations in 1990, which was later than FERRERO. Before Mentresor began producing and selling the alleged Jinsha chocolate, there were several other companies who had produced and sold Jinsha chocolate. Therefore investigation and evaluation should be based on the entire continuity of the product. Ever since its launch in 1990, Jinsha chocolate had been using packs and decorations similar to FERRERO ROCHER chocolate. After that, through wide promotion, Jinsha chocolate had been staying ahead in market shares and had obtained awards for several times, which enabled it to become a famous commodity in China. While analyzing the two chocolate products’ respective time of becoming famous, it can be seen that by middle 1990s, Jinsha chocolate had gradually developed into a nation renowned commodity from a commodity recognized only by local government and consumers. While before 1993, FERRERO ROCER chocolate had only been sold in places like duty-free stores and airports since its entry into the domestic market, which prevented its close contact with ordinary consumers, and thus FERRERO ROCHER chocolate was not famous during this period. After 1993, FERRERO ROCHER chocolate targeted Guangdong, Shanghai and Beijing as its main markets and then gradually expanded its sales scope based on these three places, which enabled it to become a famous commodity in China. This showed that FERRERO’s time of becoming famous was later than that Jinsha chocolate produced by Mentresor. Regarding popularity, Jinsha chocolate gained better recognition by consumers and thus obviously had more popularity than FERRERO ROCHER chocolate. Under such circumstance, consumers would not take Jinsha chocolate for FERRERO ROCHER chocolate by mistake. Besides, the simultaneous existence, promotion and sales of the two chocolate products in the domestic market had gathered their respective consumer group and as the product pack of the two products clearly indicated FERRERO ROCHER trademark and Tresor trademark, consumers may distinguish the products by referring to the trademarks of the chocolates as well as the producers and thus would not be misled or confused. Therefore, the behavior of Mentresor did not constitute unfair competition to FERRERO and the behavior of Zheng Yuan did not constitute infringement.
After the first instance, FERRERO appealed.
FERRERO alleged that 1: the court of first instance confused TRESOR DORE chocolate produced by Mentresor with candies and food using the “Tresor” trademark, and mistakenly affirmed the respective time of becoming famous of FERRERO ROCHER chocolate and the alleged TRESOR DORE chocolate in China. 2: the court of first instance neglected the evidence that FERRERO ROCHER chocolate enjoyed world popularity, and thus mistakenly affirmed that FERRERO’s popularity abroad did not extend to China. 3: the court of first instance mistakenly denied the specific features of certain parts of packing and decorations used for FERRERO ROCHER chocolate, which brought the wrong conclusion that despite the similarity between the two chocolates in packing and decorations, it did not lead to confusion. 4: the court of first instance mistakenly understood the concept of “relevant public” and excluded consumers of duty-free stores from such concept, and mistakenly divided the relevant public according to the commodity prices and different demands of different consumer levels.
Mentresor defended that the alleged commodity was indeed Jinsha chocolate and the packing and decorations of the alleged commodity were those used for Jinsha chocolate. Mentresor did not change the source of the product by applying a combination of “TRESOR DORE” trademark and “Tresor”. The judgment of first instance was correct.
Tianjin Higher People’s Court held in the second instance that, a famous commodity provided in China’s Anti-Unfair Competition Law referred to a commodity already sold in specific markets and well-known by the relevant public. Since its public sales in 1984, the product had been known to the relevant public and after such long period of sales, it shall be affirmed as a famous commodity. The packing and decorations used for FERRERO ROCHER chocolate belonged to overall design, which expressed specific meanings and formed specific style of packing and decorations. The packing and decorations used for TRESOR DORE chocolate of Mentresor were nearly identical to those of FERRERO ROCHER chocolate, and Mentresor failed to prove that such packing and decorations were independently designed by it or were used by it before FERRERO. Therefore, it should be affirmed that Mentresor used the packing and decorations specially owned by FERRERO ROCHER chocolate. According to the principle of integrity and good faith as well as commonly recognized business practice, a famous commodity should be the result of operation in good faith. Any operational result gained from unfair competition should not be taken legally as evaluating grounds for the popularity of the commodity. If the litigation claims of FERRERO would have been rejected because of the reason that TRESOR DORE chocolate produced by Mentresor had a better recognition in current Chinese market than FERRERO ROCHER chocolate, it was actually to sustain the results of the unfair competition in this case. Therefore, the court ruled that the behavior of Mentresor constituted unfair competition by causing confusion on FERRERO’s commodity and business activities, which should be stopped according to laws. The court also ruled that Mentresor should compensate RBM 700,000 Yuan to FERRERO.
After the second instance, Mentresor applied for retrial to the Supreme People’s Court and alleged that, 1: FERRERO product’s popularity in the international market should not certainly come to the conclusion of its popularity in the domestic market. 2: The market share of FERRERO ROCHER was lower than Jinsha chocolate, and the second instance mistakenly denied the fact that FERRERO ROCHER chocolate’s popularity was later than that of TRESOR DORE, which had already been affirmed in the first instance. 3: packing and decorations used for FERRERO ROCHER chocolate were commonly used in international chocolate industry and had no specific features, while the packing and decorations used for Jinsha chocolate were designed by professional personnel appointed by Mentresor. 4: As chocolates are high-class desserts, consumers would not distinguish them according to packing and decorations. Thus similar packing and decorations would not lead to consumers’ confusion.
FERRERO responded that the second instance correctly affirmed the facts and applied laws. Thus FERREOR petitioned the court to sustain the judgment of the second instance.
The Supreme People’s Court held that, firstly, a famous commodity provided in China’s Anti-Unfair Competition Law referred to a commodity already sold in China with high popularity and known to the relevant public. The protection of specific names, packing and decorations of an internationally famous commodity by Chinese laws should also be based on Chinese relevant public’s familiarity with such commodity. Upon recognizing a famous commodity, it should be taken into consideration the following factors for comprehensive judgment: the commodity’s sales period, sales regions, sales amount, sales targets, as well as duration, degree and scope of region of any promotion, and the situation it was protected as well-known commodity , without excluding the factor of “being famous abroad”. According to the market entry time and sales condition of FERRERO ROCHER chocolate as well as several promotional activities conducted by FERRERO, it could be affirmed that FERRERO ROCHER chocolate belonged to famous commodities. Secondly, this commodity’s packing as well as the decorations composed by characters, figures, colors, permutations and combinations, if it could be used to distinguish the source of the commodity, it was special packing and decorations under protection of the Anti-Unfair Competition Law. The characters, figures, colors, forms, sizes of the packing and decorations used for FERRERO ROCHER chocolate (on which FERRERO ROCHER petitioned for protection) had unique features in permutation and combination, which formed prominent overall appearance. After a long time usage and great amount of promotion, the relevant public could easily relate such appearance to FERRERO ROCHER chocolate, which meant that such appearance had the function of indicating the source of the commodity and should belong to specific packing and decorations protected by the Anti-Unfair Competition Law. Thirdly, as the specific overall packing and decorations used for FERRERO ROCHER chocolate had the prominent features for distinguishing the source of the commodity, while the packing and decorations used by Mentresor were quite similar to those of FERRERO, it was inevitable that relevant public may misunderstood that TRESOR DORE chocolate had certain economic relationship with FERRERO ROCHER chocolate, though the two chocolates were different in price, quality, taste, consumer level, producer’s name and trademark. Finally, regarding compensational amount, as the specific packing and decorations of a famous commodity belonged to the scope of commercial mark, the compensational amount for unfair competition provided by the Anti-Unfair Competition Law could refer to the method used for infringement upon exclusive rights of registered trademarks. As FERRERO failed to provide evidences to clarify the economic losses caused to it or the profits gained by Mentresor because of the unfair competition, the court decided the compensation according to relevant compensational provisions provided by the Trademark Law. According to the degree of the infringement, the court ruled Mentresor to pay compensation under RMB 500,000 Yuan. Therefore, the court of second instance had no legal grounds in ruling a compensation of RMB 700,000 Yuan and should be rectified. By referring to comprehensive factors of the popularity of FERRERO ROCHER chocolate, the time and scale of unfair competition conducted by Mentresor, the Supreme People’s Court decided compensation of RMB 500,000 Yuan for the economic losses.
A Publisher was Held Tortious for not Performing the Duty of Reasonable Examination
Beijing Haidian District People’s Court made a judgment of first instance on December 29, 2007, in the case of the plaintiff Shen Jun vs. the defendant Beijing TV Art Centre Audio & Video Publishing House (hereinafter, “TV Art Publishing House”), Beijing Huashi Weiye Culture Development Co., Ltd. (hereinafter, “Huashi Weiye”), Beijing Century Joyo Information Technology Co., Ltd. (hereinafter, “Century Joyo”), and Beijing 2688 E-commerce Co., Ltd. (hereinafter, “2688”), regarding infringement upon copyrights, which affirmed that the behavior of TV Art Publishing House had constituted infringement, while the behaviors of Huashi Weiye, Century Joyo and 2688 had not constituted infringement.
The plaintiff alleged that, on December 3, 2005, he created the photographic works “A Hero Becomes a Prisoner of Love”, and published it on several photo websites. In October, 2006, www.joyo.com operated by Century Joyo and www.2688.com operated by 2688 began to sell a video disc called “Green Plum”. The exterior packing covers and the covers of the disc used a photo work of “A Hero Becomes a Prisoner of Love”, which was published by TV Art Publishing House. Century Joyo appointed that Huashi Weiye was the supplier of the infringing product sold by www.joyo.com. Without the authorization of the copyright owner, TV Art Publishing House falsified a photo work of “A Hero Becomes a Prisoner of Love” and used it on the exterior packing covers and the disc covers of “Green Plum”. Besides, TV Art Publishing House falsified the originally artistically beautiful and healthy work into promotion materials containing low taste and pornographic information, which seriously infringed Shen Jun’s right of authorship, alteration, reproduction, publication, remuneration and other copyrights. TV Art Publishing House shall undertake civil liabilities. As distributors of audio-video products, Huashi Weiye, Century Joyo and 2688 failed to perform due examination obligations, instead, they highlighted the pornographic description with vulgar contents in the introduction of the video, which also infringed upon the plaintiff’s copyrights.
TV Art Publishing House defended that though the disputed DVD was published by it, it had already performed the obligation of due examination and it agreed to apologize to Shen Jun if he was the real author, but it did not agree to compensate for the losses or other claims.
Huashi Weiye defended that, though it used to provide the disputed disc for www. joyo.com, it was not a distributor. The disputed disc was a audio-video product legally published and reproduced and was purchased from a legal supplier. As a distributor for audio-video products, it had observed relevant regulations during its operation and had finished due legal examination obligations of a distributor. It did not have any fault.
Century Joyo defended that the disputed disc was a legal publication. It had executed a purchase contract with Huashi Weiye, in which Huashi Weiye warranted that the disputed disc did not constitute any infringement. Century Joyo had a legal purchasing channel and had performed reasonable examination obligations. It did not have any fault.
2688 defended that it had canceled the promotional contents on its website. The contents of the publicity were identical to those on the disc covers, without any prominence of pornographic contents. 2688 had performed reasonable examination obligations and should not undertake any legal liability.
The court held that, the exterior packing covers of the VCD and DVD of the film “Green Plum” used the photo whose copyrights were owned by the plaintiff, and several scars were added to the naked back on the photo, which distorted the original idea of the author’s creation, derogated the value of the work and infringed upon the plaintiff’s authorship right, reproduction right, circulation right, and the right to protect the completeness of the work. As a publisher for the disputed audio-video product, TV Art Publishing House should perform examination obligations corresponding to its identity as a professional publishing institution. According to its agreement executed with Jiayuanlin, the sample cover should be provided by TV Art Publishing House. However, TV Art Publishing House did not give reasonable attention to the source of the copyrights of cover work, and even separated the cover work from the film, which obviously showed that TV Art Publishing House did not perform due examination obligations. It had subjective fault and its behavior constituted infringement. As distributors for the disputed audio-video product, Huashi Weiye, Century Joyo and 2688 should also perform due examination obligations of copyrights, however, the film “Green Plum” belonged to legal publications and the disputed work had certain relationship with the film, and thus when the work was used as a disc cover, it was beyond the reasonable attention obligations for the above three defendants to investigate the infringing behavior of the cover work. Regarding the disputed audio-video work, Huashi Weiye, Century Joyo and 2688 respectively presented legal sources and had ceased sales after receiving the complaint, which meant that they had already performed reasonable attention obligations. They did not have any subjective fault and their behaviors did not constitute infringement. While promoting the VCD and DVD products of “Green Plum” on their websites, Century Joyo and 2688 inevitably used the photos and characteristics of the exterior covers, the contents of which were identical to those on the covers of the VCD and DVD of “Green Plum” and had no material difference from the style of Shen Jun’s individual website. Therefore, Century Joyo and 2688 had performed reasonable attention obligations corresponding to its identity as website services providers. They did not have any subjective fault and their behaviors did not constitute infringement.
A Mobile Phone Maker shall Have the Duty of Due Supervision for any Possible Infringement that may Occur in the Sales Part of its Products
Beijing Dongcheng District People’s Court made a judgment of first instance on December 20, 2007, in the case of the plaintiff Hu Haiquan and Chen Tao (former name: Chen Yufan) vs. the defendant Shenzhen Jinli Telecom Equipment Co., Ltd. (hereinafter, “Jinli”), Beijing Jiudazhou Telecom Equipment Co., Ltd. (hereinafter, “Jiudazhou”) and Wangfujing Branch of Beijing Jiudazhou Telecom Equipment Co., Ltd. (hereinafter, “Wangfujing Branch”), regarding infringement upon copyrights, which affirmed that the behaviors of the three defendants had constituted infringement.
The two plaintiffs alleged that, in June, 2007, they bought a Jinli brand H6 mobile phone from Wangfujing Branch at No. 200, Wangfujing Street, Dongcheng District, Beijing. This model of mobile phone was a product of Jinli. The two plaintiffs found that inside the mobile phone there stored a song “Zui Mei” (hereinafter, the “disputed song”), on which they owned the copyrights and performers’ rights of its lyrics and tunes. The two defendants held that the three defendants infringed upon their copyrights and performers’ rights of the lyrics and tunes by using the disputed song without the authorization of the plaintiffs.
Jinli defended that, it manufactured the disputed mobile phone and sold it to Beijing Chaoyue Yongxin Trading Co., Ltd. (hereinafter, “Yongxin”), and then Yongxin sold the mobile phone to Jiudazhou. It was Yongxin that downloaded the disputed song, and thus it should be added as a third person in this case. Therefore, Jinli did not agree on the litigation claims.
Jiudazhou and Wangfujing Branch defended that, they had never known the fact that their Jinli Brand H6 mobile phones stored the disputed song, and therefore they did not agree on the litigation claims.
The court held that, as the lyric and melody authors and performers of the disputed song, the two plaintiffs legally owned the copyrights and performers’ rights of the song. Without paying any remuneration to the two plaintiffs, the Jinli Brand H6 mobile phone stored the disputed song, which constituted infringement upon the two plaintiffs’ rights. The court held that in this case, the two plaintiffs should firstly provide evidences to prove two facts: their rights were infringed and the persons who infringed upon their rights. However, as consumers, the two plaintiffs were unable to know the original storage and changes during the production and sales of the disputed mobile phone; while as the maker of the disputed mobile phone, Jinli should have the ability to control all conditions during the production and sales of its products, therefore, Jinli should have the obligation to clarify the infringement of its products to consumers so as to prove that it did not conduct such infringement and had performed reasonable duty of care. As mobile phones gradually developed from a simply terminal product for communications to an integration of mobile storage, media broadcast and other non-communicative functions, Jinli applied the storage function in the disputed mobile phone for the purpose of meeting the demand of consumers and making greater profits. Though this behavior of adding accessory value to products did not violate the laws, the manufacture’s obligations of control should accordingly be strengthened while making profits basing on this. The relationship between a manufacture and an agent or a retailer was not simply that of supply and sales; there shall also be the manufacture’s control and authorization relationship. Therefore, the maker should undertake warning and supervisory obligations concerning any infringement during sales process. As the two plaintiffs claimed that the disputed mobile phone manufactured by Jinli had infringement, while Jinli failed to provide any evidence to prove that it had performed the above obligations on the product that had flaws in rights and thus Jinli should be liable for such infringement. As distributors, Jiudazhou and Wangfujing had legal sources of the disputed product and therefore should only undertake the liability to stop the sales of such product.
The Disputed Product was Constructed to Have Constituted Infringement as the Alleged Infringing Person Rejected the Evidence Preservation
Jiangsu Superior People’s Court made a final judgment on March 3, 2008, in the case of the appellant (the defendant in the first instance) Jiangsu Youxin Macromolecule Materials Co., Ltd. (hereinafter, “Youxin”) vs. the appellee (the plaintiff in the first instance) Xue Tizhong, regarding infringement upon patent, which supported the judgment of first instance and ruled that the behavior of the appellant had constituted infringement.
Xue Tizhong alleged in the first instance that, he owned the design patent rights and utility model patent rights of the disputed product. Youxin manufactured and sold the said patented product without any consent, which infringed upon his patent rights.
Youxin defended in the first instance that, it had not manufactured or sold the disputed product and therefore the plaintiff lacked factual and legal grounds.
The court of first instance held that, the plaintiff legally owned the design patent rights and utility model patent rights, which should be protected by laws. The evidences provided by Xue Tizhong were enough to prove that Youxin was manufacturing the disputed product. Xue Tizhong legally applied to the court for evidence preservation and thus the court sent personnel to Youxin to take measures for evidence preservation. However, the staff and workers of Youxin prevented the court from collecting evidences and taking measures for evidence protection such as on-site inspection and photo taking. Thus, the court failed to fix the design and technical features of the disputed product and failed to compare such design and technical features with the three patent rights involved in this case. Therefore, the court made a presumption against the defendant, which presumed that the disputed products of Youxin fell into the protection scope of the disputed patent rights and infringed the patent rights of Xue Xizhong.
After the first instance, Youxin appealed and alleged that the judgment of first instance was unfair and failed to affirm the losses advanced by Xue Tizhong. Therefore, Youxin petitioned the superior people’s court to reverse the judgment of first instance.
Xue Tizhong defended that, the first instance was legally effective in procedure and correct in judgment. Therefore Xue Tizhong petitioned the court to reject the plea and affirm the judgment of first instance.
The court of second instance held that after confirming receipt of Xue Tizhong’s complaint, Youxin should have known the court’s purpose of evidence preservation. As a specialized manufacturing enterprise, Youxin should have been quite clear about whether its products had infringed upon other’s rights or not. Under such circumstance, however, Youxin rejected the court’s evidence preservation, which resulted in the court’s failure in fixing the design and technical features of the alleged infringing product. In such case, it could be presumed that the metal coffin manufactured by Youxin fell into the protection scope of the three paten rights owned by Xue Tizhong. Therefore, the court of second instance ruled that the behavior of the appellant had constituted infringement and affirmed the judgment of the first instance.
Users of Musical Works Shall Prove that CMA is Authorized to Grant them the Use of Such Works
Shanghai No. 1 Intermediary People’s Court made a judgment of first instance on February 27, 2008, in the case of the plaintiff Foshan Shunde Kongquelang Entertainment Record Co., Ltd. (hereinafter, “Kongquelang”) vs. the defendant Shanghai Yolo Communications Equipment Co., Ltd. (hereinafter, “Yolo”), Dongguan Bubugao Audio-visual & Electronic Co., Ltd. (hereinafter, “Bubugao”), regarding copyrights and sound recording producers’ rights, which affirmed that the behavior of the defendant constituted infringement.
The plaintiff alleged that, on March 7, 2007, it bought a Bubugao True Music Song King DVD player (KD007), manufactured by Bubugao, at the Zhongshan Park Store of Yolo Home Appliances, and was presented with a DVD disc which had about 5,200 songs. Through investigation, the copyrights of 6 songs in the disc belonged to the plaintiff, including “Above the Moon”. The plaintiff held that, the defendant infringed upon its legal rights by reproducing a great many times of the disputed songs above without the authorization of the plaintiff.
Yolo defended that, it was an enterprise engaging in home-appliance sales, the alleged infringing product had legal sources and thus the plaintiff lacked factual and legal grounds in claiming compensations.
Bubugao defended that, it had executed an agreement with the Chinese Musicians Association (CMA) and had paid the using fees to obtain the using rights of the alleged songs. Therefore, it did not infringe upon the plaintiff’s copyrights by asking other singers to perform those songs and reproducing the disc without affecting the original features of the songs. Bubugao petitioned the court to reject the plaintiff’s litigation claims.
The court held that, the plaintiff was the holder of the copyrights of the alleged songs. Bubugao used the song “Let Bygones be Bygones” in the disc presented along with the DVD player, while the sound recording producers’ rights of which were owned by the plaintiff. Compared with the same song in a legal copy, the two songs had no obvious difference in rhythm, lyrics and melody. Besides, Bubugao failed to prove that the song in the alleged Karaoke disc had any other music sources, therefore the defendant’s behavior constituted infringement upon the plaintiff’s sound recording producers’ rights by using the song “Let Bygones be Bygones” in the disc attached to the DVD player without the plaintiff’s authorization.
Regarding “Above the Moon” and other three songs, though Bubugao had provided evidences to prove that it had paid the fees to CMA for the copyrights, as the plaintiff denied its identity as a member of CMA, the defendant failed to further prove that CMA had the right to charge the fees for copyrights of such four songs on behalf of the rights owner. Therefore, the behavior of Bubugao infringed upon the plaintiff’s copyrights. However, Bubugao had realized that it should obtain authorization before using other’s music works, and had already paid fees for the copyright to a collective management organization of copyrights, and this could be taken into consideration as one of the subjective conditions while confirming the compensation of this case. On the other hand, since the evidences provided by Yolo proved that the “Bubugao” DVD player sold by it had legal sources, Yolo should only undertake the liability of stop selling the product that contained the alleged songs.