Haworth & Lexon Law Newsletter
No.10 2008 (Total:No.84) Novermber. 20th, 2008
Edited by Haworth & Lexon
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“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.
Guidelines:
News of Haworth & Lexon:
Haworth & Lexon Is Engaged by Shanghai Technology Entrepreneurship Foundation for Graduates to Provide All-around Legal Services
Latest Laws and Regulations:
Enterprise State-owned Assets Law of the People’s Republic of China
Measures for the Administration of Foreign-invested Mineral Resource Exploration Enterprises
Interim Regulation of the People’s Republic of China on Value Added Tax (Revised)
Interpretation on Several Issues concerning the Application of Enforcement Procedure of Civil Procedure Law
Notice of the State Administration of Taxation on Tax Issues concerning the Income Obtained by Enterprises from Disposal of Assets
Notice on Several Issues concerning the Confirmation of Taxable Revenue of Enterprise Income Tax
Supplementary Provisions on the Price of Stock Issuance involved in the Material Asset Reorganizations of Listed Companies in Bankruptcy Revival
Measures of Shanghai Municipality for the Accreditation of Model Enterprises on Intellectual Property Rights
Legal Practices:
It shall be Considered Entirely when Judging Similarity between Associated Trademarks
Whether the Award of International Commercial Arbitration can Be Enforced in British Virgin Island
Risks at Destination Port when No One Takes Delivery of Goods or Delays or Rejects to Take Delivery of Goods
Legal Risks in Equity Acquisition
How to Dissolve the Labor Contract within the Probation Period
News of Haworth & Lexon
Haworth & Lexon Is Engaged by the Shanghai Technology Entrepreneurship Foundation for Graduates to Provide All-around Legal Services
Established in August 2006, Shanghai Technology Entrepreneurship Foundation for Graduates (STEFG) is the first non-profit public foundation in China to motivate graduates to startup their own business in scientific and technological fields, which is dedicated to relevant jobs such as entrepreneurship financial support, entrepreneurship culture broadcast, entrepreneurship education and entrepreneurship research.
Since the establishment of STEFG in 2006, the Shanghai Municipal People’s Government has povided a speciic fund of 100 million Yuan per year for five consecutive years to support the long-term development of STEFG. In addition, the council was set up with the leaders from a variety of government institutions and universities to provide support to STEFG. At present, the foundation has set up nine branches in Fudan University, Shanghai Jiaotong University, Tongji University, East China Normal University, East China University of Science & Technology, Shanghai Technology Innovation Center, University of Shanghai for Science & Technology, Shanghai University, and Shanghai Songjiang sub-branch, primarily forming its network across the city.
Tony P. Zhang, the partner of Haworth & Lexon, has deep knowledge of capital market and domenstrates rich experience in arrangement of financing for companies, projects and transactions. Tony has ever undertaken many large investment and funancing projects domestically and abroad. This time, Tony will lead the investment and financing team of Haworth & Lexon to provide full-around and deep legal services in such aspects as making investment plan and constructing invesment frame for various inestment projects of STEFG.
Latest Laws and Regulations
Enterprise State-owned Assets Law of the People’s Republic of China
The “Enterprise State-owned Assets Law” was adopted by the Standing Committee of National People’s Congress on October 28, 2008 and shall come into force as of May 1, 2009.
Enterprise state-owned assets refer to the rights and interests from various investment by the State to the enterprises. For supervision and administrattion on state-owned assets in financial enterprises, if they are otherwise regulated by laws and administrative regulations, such provisions shall prevail.
The “Enterprise State-owned Assets Law” clarifies the scope of “investor”: state-owned assets supervision and management institution under the State Council and state-owned assets supervision and management institution founded by local people’s government pursuant to the provisions made by the State Council shall, according to the authorization from the people’s government at the same level, assume the duty as an investor of state-invested enterprises on behalf of the people’s government at the same level. When necessary, the State Council and the local people’s government may authorize other departments and institutions to assume the duty as an investor of state invested enterprises on behalf of the people’s government at the same level.
The “Enterprise State-owned Assets Law” also has concrete provisions on “state-invested enterprise”, which refers to solely state-owned enterprises, solely state-owned companies, state-owned holding companies or state-owned participating companies. The Law requests that state invested enterprises should build and perfect the legal person governance structure, set up and improve the internal supervision and management and risk control system, for example, solely state-owned companies, state-owned controlling companies and state-owned participating companies shall set up the board of supervisors according to the law. The Law still confirms that the state invested enterprises shall have such investor’s rights over the invested enterprise as enjoying capital proceeds, participating in significant decision-making and choosing managers.
As to the election and assessment of managers in state invested enterprises, the “Enterprise State-owned Assets Law” provides that the institution assuming the obligation as an investor has the right to, as pursuant to laws, administrative regulations and articles of associations of the enterprise, appoint and remove or suggest appointing and removing the general manager, vice general manager, general accountant and other senior managers of the solely state-owned companies, and the board chairman, vice board chairman, directors, president of the board of supervisors, supervisors of the solely state-owned companies or propose candidates of directors and supervisors to the shareholders meeting or general meeting of shareholders of state-owned controlling companies and state-owned participating companies. Besides, the “Enterprise State-owned Assets Law” has also provided certain prohibition provisions, which include: (a) without consent of institution assuming the obligation as an investor, the directors and senior managers of solely state-owned enterprises and solely state-owned companies shall not take any post in other enterprises; (b) without consent of the shareholders meeting or the general meeting of shareholders, the directors and senior managers of state-owned controlling companies and state-owned participating companies shall not take any post in other enterprises that deal in the similar business with the above companies; (c) without the consent of institution assuming the obligation as an investor, the board chairman of solely state-owned enterprise shall not be the manager simultaneously; and (d) without consent of the shareholders meeting or the general meeting of shareholders, the board chairman of the state-owned controlling companies shall not be the manager and the directors and senior managers shall not at be the supervisor simultaneously.
To protect the rights and interests of investors of state-owned assets, the “Enterprise State-owned Assets Law” provides that concerning state invested enterprises, merger, division, reform, listing, increase or decrease of registered capital, issuance of bond, major investment, guarantee for others at a high amount, transfer of major assets, donation at a high amount, distribution of profit, dissolution, application for bankruptcy and the like shall be undertaken pursuant to laws, administrative regulations and articles of associations of the enterprise, and shall not harm the rights and interests of the investor and the creditor.
The reform of enterprises refers to the transformation of solely state-owned enterprises into solely state-owned companies, and the solely state-owned enterprises and solely state-owned companies into state-owned controlling companies or state-owned participating companies. The “Enterprise State-owned Assets Law” provides that the reform of enterprises shall go through the required procedures and undertake asset check and evaluation, financial audition, asset evaluation to correctly define and evaluate the assets and thereafter objectively and fairly decide the value of the assets.
Measures for Administration of Foreign-invested Mineral Resource Exploration Enterprises
The “Measures for the Administration of Foreign-invested Mineral Resource Exploration Enterprises” (hereinafter “the Measures”) were jointly promulgated by the Ministry of Commerce and the Ministry of Land and Resources on July 18, 2008 and shall come into force as of August 20, 2008.
Foreign-invested mineral resource exploration enterprises refer to foreign-invested enterprises that are registered within the territory of China and engage in investment in mineral resources (oil, gas and coal bed methane excluded) exploration and relevant activities according to relevant laws in China. The Measures allow foreign enterprises, individuals and other economic organizations to set up solely foreign-invested mineral resource exploration enterprises or equity or contractual joint venture with Chinese enterprises and other economic organizations, however, the Chinese investor shall be geological exploration entity that are registered within the territory of China and legally engage in businesses activities.
The Measures provide that Chinese investors may contribute the legally owned mineral resource exploration rights and the geological exploration materials relevant to the mineral resource exploration rights as the condition for joint venture or co-operation. However, if the Chinese investor contributes the mineral resource exploration rights that are funded by the State as the condition for joint venture or co-operation, the relevant regulations shall be satisfied. Still, when submitting the application for approval, the statement in respect of the establishment of the mineral resource exploration rights and the exploration investment, and the copies of the evaluation report of the mineral resource exploration rights and the copy of the exploration license shall at the same time be submitted.
As to the examination and approval power, the examination and approval for the establishment of the foreign-invested mineral resource exploration enterpises that belong to the restricted items in the Catalogue for the Guidance of Foreign Investment Industries shall be under the charge of the Ministry of Commerce; the examination and approval for the establishment of other foreign-invested mineral resource exploration enterpises shall be under the charge of competent commercial administration in all provinces, autonomous regions, municipalities directly under the Central Government and cities under Central Planning.
After receiving the approval certificate for foreign-ivested enterprises and the business license, the foreign-invested mineral resource exploration enterpises shall apply for exploration license to competent land and resources administration. Only having applied and obtained the geological exploration qulification certificate may foreign-invested mineral resource exploration enterpises undertake geological exploration activities that are covered by its qualification. The foreign-invested mineral resource exploration enterpises shall, before every March, report such circumstances as the operation of exploration (at the same time filing to the authority issuing exploration license), payment of tax, environment protection, use of land and the joint annual review on foreign-invested enterprises to examination and approval administration in writing.
Where the foreign investor intends to be listed abroad with the achievements from the mineral resource exploration within the territory of China, it shall submit the details of the listing to the Ministry of Commerce and the Ministry of Land and Resources for filing.
Interim Regulation of the People’s Republic of China on Value Added Tax (Revised)
The “Interim Regulation of the People’s Republic of China on Value Added Tax (Revised)” (hereinafter “the Regulation”) was promulgated on November 10, 2008 by the State Council and shall come into force as of January 1, 2009.
The Regulation has the following changes:
1. As to the item which does not allow offset from output tax amount, the Regulation has deleted the item of “purchase of fixed assets”, i.e., later the input tax amount for the purchase of fixed assets are allowed to be deducted from the output tax amount. Besides, the Regulation has added “the taxpayer’s self-use consumables as prescribed by the finance and taxation administrative departments of the State Council” as the non-deductive item.
2. The Regulation has adjusted the tax rate for the VAT on small tax-payers from formerly 6% to 3%.
3. The Regulation has deleted “equipment need importing under processing business with materials, assembling on provided parts and compensation trade” from VAT free item and added the deduction rate on agricultural products and transportation expenses and qualification verification on normal VAT tax-payers.
4. The former Regulation provided that tax-payers shall declare the tax within 10 days after the date of expiration; The Regulation now extends “10 days” to “15 days”, which is relatively longer.
The Interim Regulation of the People’s Republic of China on Consumption Tax and the Interim Regulation of the People’s Republic of China on Business Tax have also been revised and shall come into force as of January 1, 2009.
Interpretation on Several Issues concerning the Application of Enforcement Procedure of Civil Procedure Law
The “Interpretation on Several Issues concerning the Application of Enforcement Procedure of Civil Procedure Law” (hereinafter “the Interpretation”) was promulgated on November 3, 2008 by the Supreme People’s Court and shall come into force as of January 1, 2009.
Pursuant to Article 201 of the Civil Procedure Law, either the people’s court of first instance or the people’s court where the property that is to be enforced is located shall have jurisdiction over the case. The Interpretation provides that, where there are more than two people’s courts that have jurisdiction over an enforcement case, the people’s court shall not accept the case if it finds that another people’s court with jurisdiction has already accept the case. Where the people’s court, after it has accepted the case, finds that another people’s court has already accepted the case, it shall cancel the acceptance of case. If the enforcement has been undertaken, it shall transfer the assets controlled to the people’s court that has accepted the case in advance.
As to the objection against jurisdiction or enforcement, the party shall file the objection in writing within 10 days after receipt of the enforcement notice, for objection against jurisdiction, or pursuant to Article 202 of the Civil Procedure Law, for objection against enforcement, but the enforcement will not be ceased during the period of review and reconsideration of the objection.
Under the following for circumstances, the people’s court at a higher level may, upon the application by the applicant, order the enforcing people’s court to enforce the case within a limited period or change the enforcing people’s court: (a) the person subject to the enforcement has assets for enforcement when the creditor is applying for the enforcement but the enforcing people’s court fails to finish the enforcement over the assets within six (6) months after receipt of the application for enforcement; (b) the person subject to the enforcement is found to have assets for enforcement in the process of enforcement but the enforcing people’s court fails to finish the enforcement over the assets within six (6) months after finding the assets; (c) as to the enforcement of obligation provided in legal documents, the enforcing people’s court fails to undertake corresponding enforcement measures within six (6) months after receipt of the enforcement application; and (d) other circumstances that satisfy conditions for enforcement but the court fails to do within six (6) months. The six (6) months period shall not include the public announcement period, inspection and assessment period, period for settlement of a jurisdiction dispute, period for mediation of an enforcement dispute, period for suspension of enforcement and period for discontinuance of enforcement.
If any person who is not the party to the case declares ownership or other substantial rights that may defer the assignment or delivery of the subject matter of the enforcement, he/she may present an objection to the enforcing people’s court. When examining the objection from the person who is not the party to the case, the people’s court shall not dispose of the subject matter of the enforcement.
Where several creditors apply for enforcement or apply for distribution of the assets to be enforced, the enforcing people’s court shall make the distribution plan in respect of the assets and deliver the plan to every creditor and the enforced person. If the creditor or the person subject to the enforcement has objection on the distribution plan, they shall file the objection in writing to the enforcing people’s court within 15 days after receipt of the distribution plan. Where the creditor or the person subject to the enforcement files a written objection, the enforcing people’s court shall inform the creditor or person subject to the enforcement who has not filed the objection. Where there is no objection from other creditor or person subject to the enforcement, the enforcing people’s court shall make revisions accordingly and then make the distribution; where there is an objection, the creditor or person subject to the enforcement who has filed the objection shall be informed. And the creditor or person subject to the enforcement who has filed the objection may sue to the enforcing people’s court within 15 days after receipt of the objection against the creditor or the person subject to the enforcement who files the objection.
The Interpretation still provides that, the person subject to the enforcement shall, after receiving the Order on Report of Assets, report the revenue, bank deposit, cash, securities; real right such as land use right and house; property rights such as transportation tool, machine, product, raw materials, creditor’s right, equity right, investment right and interests, foundation and intellectual property rights, etc. in the event of change of assets, he/she shall send a supplementary report to the people’s court within 10 days after the date of change.
Notice of the State Administration of Taxation concerning Income Tax on Disposal of Assets by Enterprise
The “Notice of the State Administration of Taxation on Issues concerning Income Tax on Disposal of Assets by Enterprise” (hereinafter “the Notice”) was promulgated on Octomber 9, 2008 by the State Administration of Taxation and shall come into force as of January 1, 2008.
The Notice provides that, except otherwise transfer the asset abroad, when enterprises dispose the assets in the following circumstance, as the form and essence of the ownership of the assets are not changed, it may be deemed as disosal of internal assets other than confirmed sales revenue, and the relevant taxation basis shall be continually calculated: (a) use the assets to manufacture, produce or process another product; (b) change the shape, structure or function of the assets; (c) change the usage of the assets (for example, use the self-built commodity house for self-use or business); (d) move the assets among the general instituion and other branches; (e) mingle two or more of the above circumstances; and (f) other circumstances under which the usage of the assets is not changed.
If the enterprise gives the assets to others for market promotion, sale, social activity, employee incentive or welfare, distribution of stock dividend and donation , it shall not be deemed as internal disposal of assets since th ownership of assets have been changed, which shall be calculated as the revenue fron sale. In the occurrence of above circumstances, for assets produced by the enterprise itself, the sales revenue thereof shall be decided according to the sales price of the same kind of assets sold at that time; for assets purchased, the sales revenue shall be decided according to the purchase pirce.
For assets disposed of before January 1, 2008, if tax treatment is still pending after January 1, 2008, this Notice shall apply.
Notice on Several Issues concerning the Confirmation of Enterprise Income Tax Revenues
The “Notice on Several Issues concerning the Confirmation of Enterprise Income Tax Revenues” (hereinafter “the Notice”) was promulgated by the State Administration of Taxation on October 30, 2008.
The Notice provides that, the sales revenue obtained by the enterprise shall comply with the principles of accounting on accrual basis principle and essence overweighing the form. The revenue can be confirmed if the sale of goods by enterprise satisfies the following conditions at one time: (a) the contract for sale of goods has been concluded and the enterprise has transferred the main risk relevant to the ownership of goods and compensation to the buyer; (b) the enterprise dose not withhold the management rights relating to the ownership of the goods sold, nor has undertaken effective control; (c) the calculation of the revenue is reliable; and (d) the calculation of the costs of the seller that has occurred or will occur is reliable. For enterprises that satisfy the above conditions, the Notice has provided the confirmation time of the revenue pursuant to various means of sales: where the sale of goods is undertaken by collection and acceptance, the revenue is confirmed when the collection formalities are completed; where the advance payment is employed, the revenue is confirmed when the goods are delivered. Where the after-sale buy-back is employed for the sale of goods, the revenue is confirmed according to the sales price, and the buy-back of goods shall be deemed as purchase of goods. Where the old-for-new trade is employed for the sale of goods, the revenue is confirmed according to the confirmed conditions for the revenue from goods sold, and the goods recycled shall be deemed as goods purchased. As to the debit discount given by the creditor to the debtor for the purpose to urge the debtor to make the payment within provided term, it shall be deducted as financial expenses when it eventually occurs.
At the end of each taxation term, if the results from providing labor can be reliably estimated, the schedule of completion (percentage of the completion) shall be used for confirmation of the revenue. “Reliably evaluated” shall mean satisfaction of the following conditions at the same time: (a) the amount of the revenue can be reliably calculated; (b) the schedule of completion of the trade can be reliably confirmed; and (c) the costs that have incurred or to be incurred can be reliably assessed. The schedule of completion of the labor service provided by the enterprise may be confirmed according to the assessment of the work completed, the percentage of the completed labor to the total volume of the labor or the percentage of the costs incurred to the total costs.
The Notice has also provided the revenue confirmation time for eight activities concerning the provision of labor service such as installation fees, software fees, service fees, membership fess, labor service fees and the like
The Notice provides that, if the enterprise is selling the self-produced commodities by means of buy-one-get-one-free, it shall not be deemed as donation and the sales revenue for each commodity shall be confirmed by distribution of the total sales amount according to the percentage of each commodity’s fair value.
Supplementary Provisions on the Price of Stock Issued from Material Asset Reorganizations of Listed Companies in Bankruptcy Revival
The “Supplementary Provisions on the Price of Stock Issued from Material Asset Reorganizations of Listed Companies in Bankruptcy Revival” (hereinafter “the Supplementary Provision”) was promulgated on November 11, 2008 by China Securities Regulatory Committee and shall come into force as of November 12, 2008. The Supplementary Provisions are to supplement Article 42 of the Administrative Measures for the Material Asset Reorganizations of Listed Companies: where the bankruptcy revival of listed company involves reorganization of material asset and is going to issue stock for purchase of assets, the price of stock shall be firstly confirmed by the relevant parties after consultations and then decided by the general meeting of shareholders. The decision shall be adopted by more than 2/3 of the voting rights held by the shareholders present in the meeting, and by more than 2/3 of the voting rights held by the public shareholders present in the meeting. The affiliated shareholders shall withdraw from the voting.
Measures of Shanghai Municipality for Accreditation of IP Model Enterprises
The “Measures of Shanghai Municipality for Accreditation of IP Model Enterprises” (hereinafter “the Measures”) was jointly promulgated by Shanghai Economic Commission, State-owned Assets Supervision and Administration Commission of Shanghai Municipal Government, Shanghai Municipal Finance Bureau, Shanghai Administration for Industry and Commerce, Shanghai Intellectual Property Administration and Shanghai Copyright Bureau on October 9, 2008 and shall come into force as of the promulgation date. The Measures shall apply to various enterprises of independent legal person that are in advanced manufacturing industry and modern service industry in Shanghai. The IP model enterprises as accredited may apply for specific financial support pursuant to the Measures.
An enterprise applying for engaging in the IP model enterprises establishment project shall satisfy the following conditions: (a) where the enterprise is registered in Shanghai, and has self-owned trademarks and authorized patent (or copyright registration of computer software or design registration of integrated circuits or the right of the new plant variety); (b) where the economic efficiency, service quality, technical level of the products and market share of the enterprises rank in the forefront of its industry in Shanghai; (c) where the enterprise has established relevant IP management system (including training and incentive), set up management institution and equipped with professional personnel; and (d) where the enterprise has paid high attention to genuine software. The accreditation procedure of IP model enterprises includes information publication and acceptance, self-evaluation and application by the enterprises, submission of necessary materials, pre-trial and organization of establishment activities, verification and accreditation.
The Measures have detailed provisions on the accreditation conditions and procedure of IP breeding enterprises and IP model enterprises, in which, the accreditation conditions for IP model enterprises are (a) the enterprise has large business scale, and the technical level of the products, the market share, the economic efficiency and service quality rank in the forefront in its industry in Shanghai; enterprises not in the major development industry as well as enterprises running under deficit shall not be accredited as model enterprises; (2) the enterprise has established intellectual property rights system, set up management institution and employed professional personnel, and formed an valid operation mechanism; (c) the enterprise has the capability of self-innovation and advanced key technology, and owns core technologies of self-owned intellectual property rights; (d) the enterprise has made strategies on intellectual property rights, and brought the creation, ownership, operation, management and protection of intellectual property rights into every connection of the business management; (e) the trademark of the enterprise has high reputation and is publicly recognized, and the enterprise is positively applying for recognition of China Famous Trademark or Shanghai Famous Trademark; (f) the enterprise pays high attention to the implementation of intellectual property rights and has outstanding achievement. The intellectual property right work is of specific features, which is model and worthy of promotion; and (g) the enterprise must be the accredited IP breeding enterprises. The Office under Shanghai Municipal Commission on the Promotion of IP Model Enterprises shall organize and verify the application for growing enterprises.
IP breeding enterprises that are not accredited as IP model enterprises may engage in the accreditation of model enterprises on intellectual property rights in the next year, however, the term shall not be longer than three years. Enterprises that are accredited as model enterprises on intellectual property rights shall be reviewed once a year and the preferential measures will be ceased if they fail to pass the review.
Legal Practices
It shall be Considered Entirely when Judging Similarity between Associated Trademarks
The trademark “Ming Yue & figure” (hereinafter “the Cited Trademark”) was applied for registration by Guangzhou White Wine Factory on January 4, 1979 and was approved by the Trademark Office on May 1, 1981 on Category 36 Triple Distilled Wine. On October 14, 1982, the trademark was approved to use on various wines. Later, after the unification of classification of goods and services by the State, the trademark was approved to be used on Category 33 of NICE Classification. Being modified for many times, the registrant of the Cited Trademark was finally changed into Guangzhou Zhujiang Brewery Co., Ltd. on November 2, 2005. The term for exclusive use of the Cited Trademark was renewed until February 28, 2013. The Cited Trademark is a figure & word associated trademark, with a circle in the center and the words “Ming Yue” below. Still, there was a moon surrendered by clouds inside the circle (Picture One).
The trademark “Zui Ming Yue & figure” (hereinafter “the Disputed Trademark”) was applied for registration on January 13, 1998 by Sichuan Longchang Yeast Liquor Second Factory (a non-concerned party in this case) and the exclusive term was from May 21, 1999 to May 20, 2009. The Disputed Trademark was approved to use on Category 33, wine (beverage), white wine, alcoholic beverage (excluding beer) with the trademark registration number 1277106. On September 28, 2004, the Disputed Trademark was assigned to Jiang Zhengtai. The Disputed Trademark was a figure & work associated trademark with a circle in the center and the word “Zui Ming Yue” below. Still, there was an artistic character “ZMY” on the circle (Picture Two).
(Picture One) (Picture Two)
On March 27, 2000, Guangzhou Zhujiang Brewery Co., Ltd. claimed to the Trademark Review and Adjudication Board under the State Administration for Industry and Commerce (hereinafter “the TRAB”) for cancellation of the Disputed Trademark as it had violated the then effective Articles 17 and 27 of the Trademark Law. Later on June 13, 2007, the TRAB made a Decision on the Dispute of Trademark No. 1277106 “Zui Ming Yue & Figure” (hereinafter “Decision No 2515”), which held that “Zui Ming Yue & Figure” and “Ming Yue & Figure” had constituted similar trademarks on similar goods. Therefore, the TRAB cancelled the Disputed Trademark according to the provisions of the Trademark Law.
Jiang Zhengtai was not satisfied with the Decision No. 2515 and sued to Beijing No.1 Intermediate People’s Court.
After trial, Beijing No.1 Intermediate People’s Court held that: it was provided in the laws of China, if the trademark applied for registration was identical with or similar to other trademarks which have already been registered or preliminarily examined on the same kind of or similar goods, the Trademark Office shall reject the application. In this case, the parties had no objection over opinion that the trademarks were used on similar goods, and the focus thereof shall be if these two trademarks were similar trademarks. On the ground of ascertained facts, both the Disputed Trademark and the Cited Trademark were word & figure associated trademarks and both of them were using moon as the background, but what to be focused in the Disputed Trademark was the initial letter of the three Chinese characters “Zui Ming Yue”, which has objectively strengthened the pronunciation function of the words on the Disputed Trademark. On the other hand, the picture used on the Cited Trademark was merely a picture without any word. From the words on the trademarks, “Ming Yue” and “Zui Ming Yue” have differences in pronunciations and meanings. Still, the combination of figure and words in the Disputed Trademark has created a different prospect from the Cited Trademark, so as to bring distinct identification effects to the consumers. Therefore, the co-existence of the Cited Trademark and the Disputed Trademark will not cause confusions to the consumers, nor will it harm the interests of either the third party or the public. In consequence, the people’s court held that, the Disputed Trademark and the Cited Trademark have not constituted similar trademark, and the Decision 2515 was wrong and shall be cancelled.
After the trial of first instance, neither party has appealed and thus the judgment went into effect.
Summary
In this case, the people’s court and the TRAB have made opposite decisions over the same two trademarks. The reason is, when determining the similarity of word & picture associated trademarks, not only the general principle of similarity judgment shall be applied, but the particularity of associated trademarks shall be considered.
The general principle of similarity judgment between trademarks refers to the principle to determine identical or similar trademarks as provided by Item 1 of Article 52 of the Trademark Law: (a) the normal attention of the public shall be the standard; (b) not only compare the trademarks in entirety, but also the major parts thereof, and the comparison shall be undertaken separately when the compared subjects are isolated; and (c) the obviousness and reputation of the registered trademark that is applied for protection shall be considered when determining the similarity of the trademarks. Moreover, when judging the similarity between figure & word associated trademarks, their particularities shall be considered:
while undertaking the comparison in entirety and the observation in major parts, more attention shall be paid to the comparison in entirety;
while observing the major parts, the standard of similarity shall be more strict than purely figure or word trademark. The similarity shall not be judged merely based on the fact that they are identical or similar in word or picture;
while understanding the figure and word of the associated trademarks, the connections between the figure and the word shall be noticed. A single figure or word may only have one meaning or image, however, the meaning or image from the combination thereof may not be the simple combination of word and figure, which could form a new meaning or image on the basis of the combination. In this case, the words “Zui Ming Yue” itself in the Disputed Trademark are more meaningful than those of “Ming Yue”, which has, together with the initial phonetic letters of the three Chinese characters “ZMY” on the moon pattern, not only strengthened the pronunciation function of the words in the Disputed Trademark, but also built an image that is completely different from that of the Cited Trademark by combining the figure and the word, so as to bring various identification effects to the consumers. Therefore, the people’s court finally holds that these two trademarks are not similar.
In consequence, when comparing figure & word associated trademarks, we ca not literally consider the general principles provided by Article 52 of the Trademark Law, but also the particularity of associated trademarks, which shall be determined in entirety considering the connections between the word and picture. Only in this way can we correctly determine if the trademarks are similar.
（Contact of the author: juliazhu@hllawyers.com）
Whether the Award of International Commercial Arbitration can Be Enforced in British Virgin Island
With the increase of international activities by Chinese enterprises, it is common that international arbitration is more and more adopted by the parties in the international commercial contract as the resolution of dispute. One of the important reasons thereof shall be the existence of New York Convention.
The whole name of New York Convention is Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which was adopted by UN international commercial arbitration conference on June 10, 1958 in New York. Till November 15, 2008, there are 143 signatories such as China, USA, Britain, France, Germany, Japan, Russia, Italy, Brazil, India and the like, who have recognized the effect of New York Convention.
Pursuant to Article 3 of the New York Convention, each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon. Therefore, except the provisions declared to be reserved, each Contracting State shall recognize the arbitral awards made in another Contracting State as legally binding and enforce them according to relevant laws and regulations. So the key to the question whether an award of international commercial arbitration can be enforced in British Virgin Island shall be if the State where the award of international commercial arbitration is made as well as the British Virgin Island is signatory to the New York Convention.
The famous arbitration institution in the world includes: Hong Kong International Arbitration Centre, Singapore International Arbitration Centre, the London Court of International Arbitration, ICC International Court of Arbitration, the Arbitration Institute of the Stockholm Chamber of Commerce, American Arbitration Association, China International Economic and Trade Arbitration Commission and the like. According to the UN official website, New York Convention came into force in Hong Kong, Singapore, Britain, France, Sweden, USA and China where the arbitration institutions are located on January 21, 1977, November 19, 1986, December 23, 1975, September 24, 1959, April 27, 1972, December 29, 1970 and April 22, 1987 respectively. After resuming the exercise of sovereignty over Hong Kong on July 1, 1997, China immediately declared that the application of New York Convention shall be extended to Hong Kong Special Administration Region. Therefore, whether the international commercial arbitral awards made by above international arbitration institutions can be enforced in British Virgin Island shall be decided by whether the British Virgin Island recognizes the effects of New York Convention,
According to the announcement made by the British, a signatory to New York Convention according to the regulations of “New York Convention”, the application of New York Convention in Britain shall be extended to the following territories: Gibraltar (September 24, 1975), Isle of Man (February 22, 1979), Bermuda (November 14, 1979), Cayman Islands (November 26, 1980), Guernsey (April 19, 1985) and Bailiwick of Jersey (May 28, 2002). The above territories do not include British Virgin Island. In other words, the judicial authorities of British Virgin Island do not recognize the effects of New York Convention in this country. Therefore, international commercial arbitral awards made by the signatories to New York Convention can not be enforced pursuant to New York Convention in British Virgin Island.
Then, does it mean that the international commercial arbitral awards cannot be enforced in British Virgin Island? Not exactly. Article 7 of New York Convention provides that, the provisions of this Convention shall not affect the validity of multilateral or bilateral agreements concerning the recognition and enforcement of arbitral awards entered into by the Contracting States nor deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law and treaties of the country where such award is sought to be relied upon.
Therefore, if British Virgin Island has entered into any multilateral or bilateral agreement with any other countries, the international arbitral awards made in these countries can be recognized and enforced in British Virgin Island. At the same time, there are conventions concerning the recognition and enforcement of arbitral awards before New York Convention such as the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927, which is recognized by many famous offshore regions such as British Virgin Island, Cayman Island, Bahamas and Mauritius, and Britain, France, Germany, Japan and India. However, because of the execution of New York Convention, they are less influential in the world as many internationally influential countries (such as China and USA) do not enter into such convention.
In consequence, the enforcement of international arbitral awards in British Virgin Island shall be not only on the basis of New York Convention, but also the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927, and then consult with professionals based on above conventions.
（Contact of the author: baileyxu@hllawyers.com）
Risks when No One Takes Delivery of Goods or Delay or Rejection of Taking Delivery of Goods at Destination Port
Normally, the goods delivered by sea will be taken by consignees after their arrival at the port of destination, however, there are exceptions. When the carrier has delivered the goods to the port of destination, sometimes it happens that no one takes or someone delays taking delivery of the goods. At that time, either the carrier does not know who shall be the consignee as no one so demonstrates or the consignee expressly tells carrier that he will not take delivery of the goods.
If the consignee does not to take delivery of the goods, the carrier will suffer certain amount of losses such as freight collection at destination and container overtime charge, and shall pay in advance the port storage charge and the refrigerated containers charge. For consigner, if the goods are not taken by any body at the port of destination (i.e. the consignee does not appear), he shall still assume all the expenses and risks for the carrier such as the storage charge, disposal expenses or the to-and-fro expenses. A simple case can be referred to below:
Plaintiff: one export & import company in Zhejiang province
Defendant: one transportation company in Shanghai
On January 26, 2005, the Plaintiff entered into a sales confirmation letter with a foreign Buyer S at the amount of USD 60,000. The shipment shall be undertaken about May 30, 2005 and partial shipment or transshipment is allowed. The destination shall be Abidjan, and the term of payment was D/P at sight. The Buyer shall buy the insurance.
On April 27, 2005, the goods were declared for export, and the business unit as well as the delivering unit on the declaration paper was the Plaintiff. The term was FOB and the destination was Cote d'Ivoire. On April 28, 2005, the Defendant issued the original B/L, on which the carrier and the payee was the Defendant, the consignor was the Plaintiff and the consignee is to be notified and the notifying party was Buyer S. The port of shipment was Shanghai and the port of discharge was Abidjan. According to the Notice No. 135/DGD by the Department of Finance of the Republic of Cote d'Ivoire on October 18, 2002, in order to ensure the safety management at the port, any importing container not inspected by BIVAC or COTECNA in advance shall be cleared. On June 14, 2005, the Administration for Un-declared Goods at the port of destination requested that the disputed goods should be delivered to it and then transferred to warehouse one. On April 12, 2006, the General Customs, Abidjan Administration of Customs Affairs and the Administration for Un-declared Goods jointly promulgated the Notification for Bidding on April 27, 2006 to sell the confiscated and abandoned goods that had been registered in the warehouse one for more than two months at auction. The disputed goods were in the list of goods for tendering.
As the plaintiff failed to receive any payment from the goods after shipment, it asked for many times the Defendant for the whereabouts of the goods, however, no clear replies were received. Later the Plaintiff found after inquiry that the container used to contain the disputed goods was used for other purpose since October 2005. Then the Plaintiff sued to the court and claim for compensation against the Defendant.
After trial, the maritime court held that, the Defendant shall, because of issuance of the B/L for the goods, be obligated to transport the goods safely according to the requirements in the shipment contract and deliver the goods upon the order of the consignee at the port of destination. It is legally provided that in the event that no one takes delivery of the goods or if the consignee delays or rejects to take delivery of the goods at the port of destination, the captain may unload the goods at the warehouse or any other suitable place, and the expenses and risks thereof shall be assumed by the sales party. The consignee was obligated to take delivery of the goods on time at the port of destination according to the provisions of the shipment contract. During the performance of contract for shipment of goods by sea, various necessary formalities at such competent departments as port, customs, quarantine, inspection and other agencies shall be also borne by the consignee. Any loss or damage arising from untimely, incomplete or incorrect formalities shall be assumed by the consignee.
The Defendant, as the carrier of the disputed goods, has shipped the goods to the port of destination according to the provisions of the shipment contract. The Plaintiff and the consignee failed to take delivery of the goods on time, and thus the goods were detained, cleared and sold by auction by the customs authority for reasons not attributable to the carrier. Therefore, the loss and damage to the goods and the loss of interests shall have no relation to the carrier and the Defendant shall not be responsible for any compensation to the Plaintiff.
The maritime court finally held that, the Defendant shall not bear any liability of compensation to the Plaintiff and rejected the claims of the Plaintiff.
（Contact: jeromewang@hllawyers.com）
Legal Risks in Equity Acquisition
Equity acquisition is one of the ways of investment used to purchase the stock of a target company, and is one of the commonly used methods to expand the scale of the company.
The investor can be the shareholder of the acquired company after purchasing the stock of the target company, so as to exercise the rights of the shareholder as well as undertake the liabilities provided by laws and regulations. In view of the above, the process of equity acquisition is concurrent with express or potential risks in such aspects as legal, financial and the like. The equity acquisition is a complex legal project and the success of the acquisition or not is determined by several factors, while the knowledge of the investor about the target company is one the most important factors among so many decisive factors. Therefore, before entering into the agreement for purchase of stock, the purchaser shall engage professionals such as lawyers and financial counsels to conduct due diligence over the target company, so as to have a complete and clear image of the target company. Only when the true profile of the target company is clearly understood can we avoid the risks arising from the acquisition to a certain extent.
Generally speaking, the equity acquisition involves the following risks:
Legal risk: the qualification of the target company, the legality of the business management of the target company, the assets of the target company, the creditor’s rights and debit, etc.
Financial risk: the asset condition, business capability, business situation and competitiveness of the target company and etc.
Other risks: the technology of the target company and the environmental protection of the target company and etc.
This text intends to discuss the legal risks arising out of the equity acquisition from a legal perspective:
I. Qualification of the Target Company
The legal risks in this aspect mainly refer to those if the procedure, qualification, condition and mode of the establishment of the target company were legally undertaken according to the laws, regulations and other regulatory documents at that time. For companies that must be established after approval, such as stock company, foreign invested enterprises, business that shall be run only after approval and the like, the approval from competent department shall be considered. At the same time, the performance of necessary procedures in the process of establishment of the target company such as asset evaluation and verification of capital in respect of the target company, as well as the conformity thereof with the law and regulations and other regulatory documents at that time shall be considered, especially when the state-owned assets are involved. Besides, risks also exist in whether the target company legally exists, whether there are legal obstacles in continuance of business, and whether the business scope and operation mode are complying with relevant law and regulations.
II. Major Assets and Property Rights Owned by the Target Company
The investor pays special attention on this point. The major risks relevant to the assets in the acquisition of the target company are: whether there are ownership dispute or potential dispute in respect of the land use rights, real property, trademark, patent, copyright, franchise right, major production and business devices of the target company; what means are used by the target company to obtain the ownership or right of use of the above assets; whether the target company has obtained a complete set of certificates of rights, if not, whether there are legal obstacles to the acquisition of the certificates of rights; whether the target company is limited to exercise ownership or right of use over its major assets, whether there is guaranty or other limitation on the rights, and whether the target company has leased its houses or its land use right and the legality of the lease thereof, etc.
III. Major Creditor’s Rights and Debts of the Target Company
This point is usually what the investors pay particular attention to, and also where the risks and traps are. The relevant risks in the acquisition are: the receivables and the payables of high amount and other receivables and payables of the target company and whether they are legal and effective, and if the creditor’s rights are of risks of realization; the validity, effectiveness and risks of the major contracts to be performed, or is performed by the target company or those have already been performed but may have potential dispute; the guaranty by the target company to another party, and whether there are risks to assume the payment obligations for another party as well as the risks to claim the recovery after the assumption of debts; whether there are tort liabilities borne by the target company arising from environmental protection, intellectual property rights, labor protection, personal rights and the like; and etc. Special attention shall be paid on the risks of guaranty, the limitation of action and the possibility of realization of the receivables. Normally, the shareholders and managers of the company shall give warranty on the credits and debits, especially the potential credits and debts.
IV. Litigation, Arbitration or Administrative Penalty of the Target Company
High attention shall also be paid to the legal risks on these aspects: if there are un-settled or foreseeable major litigation, arbitration and administrative penalty of the target company; if there are un-settled or foreseeable major litigation, arbitration and administrative penalty in respect of the controlling shareholders or major shareholders of the target company. If the controlling shareholders or major shareholders of the target company are so involved while they are of not enforcement capability, the target company will be influenced; if the stock of the target company owned by the controlling shareholders or major shareholders of the target company are pledged; besides, if there are un-settled or foreseeable major litigation, arbitration and administrative penalty in respect of the chairman of board and general manager of the target company, in the event of these circumstances, the target company would suffer from negative influences on its production and operation.
V. Standards relevant to Tax, Environmental Protection, Product Quality and Technology of the Target Company
For specific target companies, these aspects are of high acquisition risks. In China, there are numerous tax preferences and financial subsidiaries. If the target company is capable to enjoy such preferences and financial subsidiaries, attentions shall be paid to the legality, compliance, authenticity and effectiveness of such policies. For instance, whether the business activities and the proposed investment of the target company are in compliance with relevant environmental protection requirements; whether the competent departments have issued relevant opinions; whether the product of the target company conforms to relevant product quality and technology supervision standards; whether the target company has been punished for violation of law, regulations and administrative documents relevant to environmental protection, product quality and technology supervision.
The risks in acquisition abovementioned are normally in association with most of the acquisitions. For some target companies in specific industry or of special background, there shall be more uncertainty concerning the risks in acquisition. For example, as to the painting industry, special attentions shall be paid to license and approval on the environmental protection, safety production, product quality supervision and labor protection, as well as the relevant measures that have been taken, and the history of administrative penalties.
In practical equity acquisition, some investors are so overconfident to make the final decisions merely on the basis of their knowledge and feeling of the target company and are trapped then. Therefore, investors shall undertake necessary investigations over the target company to know the details of the target company in every aspect. However, such investigation usually can not be independently completed by the investor itself, but shall be undertaken by professional institutions. By due diligence, the investor will clearly understand various risks and the extent thereof in the target company and therefore take any possible measure to preclude the risk or lower the risk, so as to promote the process of acquisition.
（Contact of the author: chambers@hllawyers.com）
How to Dissolve the Labor Contract within the Probation Period
Many companies have the misunderstanding that employer can dissolve the labor contract at any time during the probation period. However, Article 39 of the Labor Contract Law provides that, only when the employee is “proved” to not meet the recruitment conditions during the probation period, may the employer dissolve the labor contract. From this point, the dissolution of labor contract by the employer shall satisfy the following conditions:
There are express recruitment conditions in respect of the post; and
The company is able to prove that the employee does not meet the recruitment conditions;
Therefore, the employer shall have enough evidences to prove that the employee does not meet the recruitment conditions.
Recently, we have handled a case concerning the labor dispute which has typical illustration of this issue. Here is the case:
A company hired Ms. Wang as an administrative clerk. The term of the labor contract was three years from January 2008 to January 2011. The monthly wages was RMB 2,500 Yuan. As Ms. Wang was an extrovert and always talked carelessly, the company notified Ms. Wang on February 4, 2008 to dissolve the labor contract for such reasons as she was a gossip and her speeches were not good to the internal unity of the company, The company asked her to resign after handling all necessary formalities on February 5 and intended to pay a month’s wages as the economic compensation. Ms. Wang was not satisfied with the decision of the company and applied to labor dispute arbitration commission for arbitration. The company did not set any recruitment condition for the post of Ms. Wang and have a few evidences to prove that Ms. Wang did not meet the staff standard of the company. The company submitted the following evidences to the arbitration commission:
The labor contracts between them;
The testimony given by two employees of the company proving that the speeches of Ms. Wang were not good to the internal unity of the company;
The documents with several errors typed by Ms. Wang when she was required to input the manuscript in the computer;
The telephone tape introducing the reasons (gossip) why the former employer of Ms. Wang did not renew the labor contract with Ms. Wang.
In consequence, the arbitration commission cancelled the decision made by the company to dissolve the labor contract on the ground that the evidences provided by the company could not prove that Ms. Wang did not meet the recruitment conditions of the company.
Therefore, we suggest that, pursuant to laws and regulations and the above case, the employer build sound and complete internal rules and systems and make concrete recruitment conditions for every post, and strengthen the supervision over the employees during the term of the labor contract, including the collection and reservation of the evidences concerning the performance of the employees. And thus make sure that the dissolution of labor contracts is based on solid evidence, sufficient basis and legal procedure.
（Contact: garygao@hllawyers.com）
