Haworth & Lexon Law Newsletter (85)

Haworth & Lexon Law Newsletter
No.11 2008 (Total:No.85) December. 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:

Senior Attorney Chambers Yang Was Invited to Present at the Lawyer Internet Marketing Summit Forum and Give a Keynote Speech

Haworth & Lexon Helps Nippon Paint Take back the Domain Name “nipponpaint.asia”

Latest Laws and Regulations:

Measures for the Administration of Preliminary Examination of the Land Used for Construction Projects (Revised in 2008)

Notice of China Banking Regulatory Commission on Printing and Circulating the Guidelines on Management of Risks in M&A Loans Granted by Commercial Banks

Interpretation of the Supreme People’s Court on Several Issues concerning the Application of Trial Supervision in the Civil Procedure Law of the People's Republic of China

Notice on the Application of Time Period for Producing Evidence in “Some Provisions on Evidence in Civil Procedures”

Several Opinions of the General Office of the State Council on Providing Financing Support for Economic Development

Notice on the Issues concerning the Administration of Enterprise Income Tax Deduction and Exemption

Notice on Relevant Deed Tax Issues concerning the Transfer of Ownership of Land and House between An Individual and Its Individual Proprietorship Enterprise or One-person Limited Liability Company

Notice on the Strict Implementation of Relevant Provisions of the Measures for the Administration on the Takeover of Listed Companies

Several Opinions regarding the Implementation of the Provisions on Encouragement on Establishment of Regional Headquarters in Shanghai by Multinational Corporations


Legal Practices:

Whether the Shareholder’s Rights shall Be Restricted if the Shareholder Has Not Fully Made the Contribution?

If the Trademark Registered Later Has Constituted Infringement, the Applicant may, rather than Applying for Cancellation of the Trademark, directly Sue to the Court

Construction Engineering Project Contracts subject to Bid invitation Legally must Be under Bid invitation

Illegal Dismissal of Employee Does Not Merely Mean Double Payment of Economic Compensations

 

News of Haworth & Lexon

Partner of Haworth & Lexon, Mr. Chambers Yang, Was Invited to Be Present and Delivered a Theme Speech at the Lawyers Internet Marketing Summit Forum

The Lawyers Internet Marketing Summit Forum was held in Hangzhou Capital Star Hotel on December 13, 2008 and senior attorney Mr. Chambers Yang was invited to be present at the Summit and gave a theme speech “Promote Lawyer’s Business Expansion through a Lawyer’s Website”. Chambers Yang has introduced the various internet marketing modes that helped Haworth & Lexon Law Firm to get specific reports from CCTV and people.com.cn in respect of the cases undertaken by Haworth & Lexon, and helped Haworth & Lexon to get recommendations soon after establishment from international law presses such as Asia Pacific Legal 500, Asia Law Profiles and China Law & Practice and to be nominated as one of the finalists for The China Real Estate Law Firm Awards of the Year 2004. Still, Chambers Yang has looked forward to the future of lawyer internet marketing and proposed professional co-operation and regional co-operation between lawyers. Lawyers from Shanghai, Beijing, Guangzhou, Qingdao, Zhengzhou and the like also delivered speeches on such aspects as the meaning and misunderstanding of lawyer internet marketing, the modes and effects of lawyer internet marketing, and the future development of lawyer internet marketing.

 

Haworth & Lexon Helps Nippon Paint Take back the Domain Name “nipponpaint.asia”

The international top-level domain name “.asia” is the new top-level domain approved by the Internet Corporation for Assigned Names and Numbers (ICANN) at the end of 2006 specifically for registrants at Asia-Pacific region, where the pre-registration procedure of it has started since January 2008 and application for registration has been allowed since February 20, 2008.

Soon after the top-level domain name “.asia” was open for registration, a famous network marketing company in China rushed to register the domain name “nipponpaint.asia” in the name of an individual. As the perennial legal counsel of Nippon Paint, Attorney Chambers Yang sent a lawyer’s letter to the person who rushed to register the domain name and then initiated an application for arbitration to the Asian Domain Name Dispute Resolution Centre pursuant to the Rules for Uniform Domain Name Dispute Resolution Policy, claiming for assignment of the domain name “nipponpaint.asia” to Nippon Paint. The Asian Domain Name Dispute Resolution Centre has now rendered an award that supported the claims of the claimant and the domain name “nipponpaint.asia” was assigned by the registrant to Nippon Paint in the recent days. It is learned that this is the first award delivered by the Center on assignment of top-level domain name “.asia” with regard to a domestic registrant.

When the domain name is registered by others in advance, some companies usually adopts to redeem it back, which is not only of high costs, but also inflates the arrogance of vicious registratnt. The method to take back the pre-registered domain name through domain name arbitration is not only economically feasible, but also saves time.


Latest Laws and Regulations

Measures for the Administration of Preliminary Examination of the Land Used for Construction Projects (Revised in 2008)

The “Measures for the Administration of Preliminary Examination of the Land Used for Construction Projects (Revised in 2008)” was adopted by the Ministry of Land and Resources on November 29, 2008 and shall come into force as of January 1, 2009.

The revisions to the Measures for the Administration of Preliminary Examination of the Land Used for Construction Projects are mainly focused on such aspects as:

The time of application for preliminary examination of the construction project that needs filing has been adjusted, and now it is requested to be undertaken after the filing, which used to be done before filing. For a construction project which needs to be examined and approved, the time of application for preliminary examination remain the same, which shall be undertaken respectively at the stage of feasibility study and before the approval of project application report.
The documents for application for preliminary examination of the land have been changed. When applying for preliminary examination of the land for construction project whose project proposal has been approved and for construction projects that need filing, the following contents shall be added to the application documents: for construction projects whose site is separately selected, if the site is within the areas prone to geological disasters as determined by geological disaster protection regulations, the evaluation report in respect of the danger of geological disasters shall be submitted, and the administration of land resources where the construction project is located shall issue a certificate to prove whether important minerals have been covered.
For construction projects that need examination and approval whose feasibility study report shall be directly examined and approved, the project entity shall, after the preliminary exmination of land and before application for approval, handle such formalities as the evaluation of geological disasters risk and the certificate of coverage of mineral resources.
The contents for preliminary examination have been added with “pre-arrangment situation of the compensation fees for land requisition and the land reclamation funds of mining area projects”.


Notice on Printing and Circulating the Guidelines on Management of Risks in M&A Loans Granted by Commercial Banks


The “Notice on Printing and Circulating the Guidelines on Management of Risks in M&A Loans Granted by Commercial Banks” (hereinafter “the Notice”) was promulgated by the China Banking Regulatory Commission on December 6, 2008 and shall come into force as of promulgation.

The term “M&A loan” refers to loans granted by commercial banks to purchasers or their subsidiary companies for payment in M&A transactions. According to the Notice, any commercial bank with a corporate status is allowed to operate the M&A loan business when the following conditions are met: (1) it has a sound risk management system and an efficient internal control mechanism; (2) the adequacy ratio of its loan loss reserves shall not be less than 100%; (3) its rate of capital sufficiency shall not be less than 10%; (4) the balance of its general reserves shall not be less than 1% of the balance of loans over the same period; and (5) it has a professional team for the due-diligence and risk assessment of M&A loans.

The Guidelines on Management of Risks in M&A Loans Granted by Commercial Banks (hereinafter “the Guidelines”) requests that every commercial bank shall assess the M&A loan risks on the basis of comprehensively analyzing strategic risks, legal and regulation-compliance risks, integration risks, operating risks, financial risks and other M&A-related risks. If involving any trans-border transaction, the commercial bank shall also analyze the country risks, exchange rate risks and capital across-border risks. On the ground of full assessment of the above M&A risks, the commercial banks shall make a judgment on whether the resources of repayment by the borrower is sufficient, whether the repayment resources match the repayment schedule, whether the borrower is able to pay the principal and interest of the loans according to the contract and at the same time provide corresponding measures or exit strategies concerning the decline of the quality of M&A loans, and form a loan evaluation report.

In the aspect of risk management, the Guidelines requests that the total M&A loans balance of a commercial bank shall not exceed 50% of the net core capital of such a bank in that period; For a single borrower, the M&A loans balance shall not exceed 5% of the net core capital of such a bank in that period; For any M&A, the M&A loans shall not be more than 50%; The term for M&A loans shall normally not exceed 5 years, etc.


Interpretation of the Supreme People’s Court on Several Issues concerning the Application of Trial Supervision in the Civil Procedure Law of the People's Republic of China


The “Interpretation on Several Issues concerning the Application of Trial Supervision in the Civil Procedure Law of the People's Republic of China” (hereinafter “the Interpretation”) was promulgated on November 25, 2008 by the Supreme People’s Court and shall come into force as of December 1, 2008.

If a party applies for retrial of a case to the people’s court that is at a higher level over the original trial people’s court on the ground of statutory retrial reasons within the statutory term, the people’s court a higher level shall legally accept the application. The statutory term shall be within two years after the judgment or order becomes legally effective, or three months after the party has known or should have known that the legal document on which the original judgment or order was made is cancelled or revised or that the adjudicating personnel were involved in any conduct of embezzlement, bribery, practicing favoritism for himself or relatives, or twisting the law in rendering judgment after two years. The above terms shall not be suspended, interrupted or extended. The statutory retrial reasons shall refer to the 13 reasons listed in Article 179 of the Civil Procedure Law, including new evidence which is conclusive enough to overrule the original judgment or ruling, the basic evidence used in the original judgment or order to determine the facts was insufficient, the major evidence used in the original judgment or order to determine the facts was fake, the major evidence used in the original judgment or order to determine the facts was not cross-examined; and etc. Where a person who is not involved in the case claims rights over the subject matter of the enforcement that is confirmed by any original judgment, order or mediation letter and is not able to bring a new lawsuit to settle the dispute, he/she may apply for retrial to the people’s court at a higher level over the people’s court that made the original judgment, order or mediation letter within two years after the judgment, order or mediation letter becomes legally effective; or within three months after he/she has known or should have known that his/her interests have been harmed. During the procedure of enforcement, if a person who is not involved in the case raises a written objection on the subject matter of the enforcement, the relevant provisions in the Civil Procedure Law shall apply.

The Interpretation expressly requests that the party applying for retrial submit retrial application letter, which shall clearly state the relevant information of the parties, the case number of the judgment, order or mediation letter, the statutory circumstances, facts and reasons for application of retrial and concrete retrial claims. The people’s court shall finish such acceptance and registration formalities as the delivery of accetance notice to the retrial applicant within 5 days after receiving qulified retrial application materials.

The Interpretation has given express and concrete statement in respect of the retrial reasons as provided in Article 179 of Civil Procedure Law, for instance, the “new evidernce” as provided in Item 1 of Clause 1 of Article 179 of Civil Procedure Law shall be the evidence that objectively existes before the end of original procedure but is found after the end of the orignal procedure; that has been found before the end of original procedure, but cannot be obtained by objective reasons or cannot be submitted within the prescribed term; and that reverses the original expert conclusion and investigation record after re-concluded or re-investigation after the end of the original procedure. Major evidences that are submitted by the party in the original procedure that fail to be cross-examined or authenticated in the orignal procedure but is able to overturn the orignal judgment or order shall be deemed as new evidence.

As to the retrial court, the Interpretation provides if a higher people’s court finds that the retrial application is on the ground of sound reaons, normally such a people’s court shall bring the case for trial. The Supreme People’s Court and the Superior People’s Court may appoint other people’s court that is at the same level of the original people’s court or order the original people’s court to retry the case. The people’s court at a higher level may designate the retrial or not according to the influenceness and the participation of the parties. If retrial is designated, it shall consider such factors as the faciliting exercise of litigation rights by the parties and faciliting trial by the people’s court.


Notice on the Application of Time Period for Producing Evidences in “Some Provisions on Evidence in Civil Procedures”

The “Notice on the Application of Time Period for Producing Evidences in “Some Provisions on Evidence in Civil Procedures”” (hereinafter “the Notice”) was promulgated on December 11, 2008 by the Supreme People’s Court.

The Notice has divided the time period for producing evidences as provided in Some Provisions on Evidence in Civil Procedures into two types: (1) not less than 30 days, which shall be applicable where the party is producing evidences to support the basic facts he/she has claimed; (2) a time period decided by the people’s court in its sole discretion, which shall be applicable where the party is requested to provide further evidence for a particular fact or for specific evidence.

The time period for producing evidence shall not be less than 30 days under either of the following circumstances:

Where the trial is changed from summary procedure to ordinary procedure, if the time period for producing evidence designated by the people’s court is less than 30 days, the people’s court shall make up the time period to be not less than 30 days;
Where the party files a jurisdiction objection during the defense term of first instance, the people’s court shall re-designate the time period for producing evidence that shall not be less than 30 days after the order to reject the jurisdiction objection has become effective;
Where the people’s court is adding the party or a third party of independent claims to participate in the litigation, it shall designate the time period for producing evidence for new parties according to the relevant provisions.
The people’s court may, in its sole discretion, decide the time period for producing evidence under the following circumstances:

Where the people’s court presents the evidences collected during investigation, the party asks to provide counter-evidence;
Where the party adds, changes the claims or brings counter-claim in the time period for producing evidences of first instance, or the party changes the claims after the people’s court informs the party that he/she may do so according to relevant provisions;
Where the party asks to provide new evidence in the trial of second instance, the time period for producing evidences designated by the people’s court shall not be restricted by the provision of “not less than 30 days”;
The time period for producing evidences for cases remanded for retrial shall not be restricted by the provision of “not less than 30 days”.
The Notice clarified the recognition of “new evidence”, which shall be recognized pursuant to Article 41, Article 42, Article 43 and Article 44 of Some Provisions on Evidence in Civil Procedures as well as the following factors: (1) if the evidence is of objective existence during the time period for producing evidences or during other terms as provided in Article 41 and Article 42 abovementioned; and (2) whether the failure by the party to provide the evidence during the time period for producing evidences or during other terms as provided by judicial interpretation is of intention or by gross negligence.


Several Opinions of the General Office of the State Council on Providing Financing Support for Economic Development


“Several Opinions on Providing Financing Support for Economic Development” (hereinafter “Several Opinions”) was promulgated on December 8, 2008 by the General Office of the State Council.

Several Opinions provide such opinions as implementing moderately relieved monetary policies to promote the steady increase of currency credit; strengthening and improving credit services and stepping up the building of a multi-layer capital market system; exerting the guarantee and financing functions of insurance and enhancing the stable operation of the economy and society; and innovating the financing methods and extending the financing channels for enterprises. It has made some revisions to part of the provisions of the Notice of the State Administration of Foreign Exchange on the Issues concerning the Implementation of Registration of Foreign Debts under the Trade in Goods of Enterprises (HuiFa [2008] No. 30]): to increase the foreign exchange settlement percentage of an advance payment on sales by the enterprises, for ordinary enterprises, the foreign exchange settlement percentage of export advances on sales shall be increased from 10% to 25%, while single export advances that are of minor amount shall not fall within the quota of the settlement of foreign exchange; and to adjust the amount of deferred payment of the enterprises from not more than 10% of the amount of import payment in foreign exchange of the enterprise in last half year to 25%.


Notice on the Issues concerning the Administration of Enterprise Income Tax Deduction and Exemption
The “Notice on the Issues concerning the Administration of Enterprise Income Tax Deduction and Exemption” (hereinafter “the Notice”) was promulgated on December 30, 2008 by the State Administration of Taxation and shall come into force as of January 1, 2008.

Pursuant to the Notice, all kinds of deductions and exemptions of enterprise income tax shall be handled according to the relevant provisions of the Notice of the State Administration of Taxation on Printing and Circulating the Measures for the Administration of Tax Deduction or Exemption (for Trial Implementation) (No. 129 [2005] of the State Administration of Taxation). For any discrepancy between the provisions of the document No. 129 [2005] of the State Administration of Taxation and the Enterprise Income Tax Law of the People’s Republic of China and its implementation regulations, the Enterprise Income Tax Law of the People’s Republic of China and its implementation regulations shall prevail.

If any deduction or exemption of enterprise income tax is subjected to the examination and approval administration, it must be as clearly prescribed by such laws and regulations as the Enterprise Income Tax Law of the People’s Republic of China and its implementation regulations and by the State Council. The scope and manners of enterprise income tax deductions and exemptions under the archiving administration shall be independently researched and confirmed by the administration of taxation at provincial level or under city specifically designated in the state plan, however, the scope within one province, autonomous region or municipality directly under the Central Government and city specifically designated in the state plan shall be the same.

The administration of taxation shall inspect the conditions for deduction or exemption of enterprise income tax every year. Where the conditions are not satisfied, the deduction or exemption policies shall be suspended. Where qualification is required to the deduction or exemption of enterprise income tax, the tax payer shall obtain qualification in advance.

Notice on Relevant Deed Tax Issues concerning the Transfer of Ownership of Land and House between An Individual and Its Individual Proprietorship Enterprise or One-person Limited Liability Company
The “Notice on Relevant Deed Tax Issues concerning the Transfer of Ownership of Land and House between An Individual and Its Individual Proprietorship Enterprise or A One-person Limited Liability Company” was promulgated on November 17, 2008 by the State Administration of Taxation, which has made clear definition to the deed tax issues concerning the free transfer of ownership of land and house between an individual and its individual proprietorship enterprise or a one-person limited liability company: the free transfer of ownership of land and house between an individual and its individual proprietorship enterprise or one-person limited liability company is between one investment principal and may not levy deed tax according to the above provisions.

 

Notice on the Strict Implementation of Relevant Provisions of the Measures for the Administration on the Takeover of Listed Companies
The “Notice of Shenzhen Stock Exchange on the Strict Implementation of Relevant Provisions of the Measures for the Administration on the Takeover of Listed Companies and the like” (hereinafter “the Notice”) was promulgated by Shenzhen Stock Exchange on December 2, 2008.

The Notice points out that the purchase of shares of listed company by investors through the bidding trading system or block trading system of Shenzhen Stock Exchange shall be “securities trading at the stock exchange” as provided in Article 13 of the Measures for the Administration of the Takeover of Listed Companies. Whenever the proportion of the shares of the listed company increases or reduces by 5% each time through the above methods at the stock exchange, the investors shall report and make an announcement according to such an Article, and shall not buy or sell the shares of the said listed company again within that period.

The Notice further requests that the investors shall, when selling or buying shares, strictly observe the relevant provisions in the Securities Law, the Measures for the Administration of the Takeover of Listed Companies and the Notice on Further Regulating the Decrease of Shares by Large Part of Non-tradable Share through Block Trading System, i.e., when the investor holds 5% of the issued shares of the listed company, he/she shall perform information disclosure obligations such as report and announcement to competent departments, and shall not buy or sell the shares of the said listed company again within the reporting period or within 2 days after reporting and announcement.

 

Several Opinions regarding the Implementation of the Provisions on Encouragement on Establishment of Regional Headquarters in Shanghai by Multinational Corporations

The “Several Opinions regarding the Implementation of the Provisions on Encouragement on Establishment of Regional Headquarters in Shanghai by Multinational Corporations” (hereinafter “the Opinions”) was jointly promulgated by Shanghai Municipal Commission of Commerce, Shanghai Municipal Finance Bureau, Shanghai Municipal Human Resources and Social Security Bureau, Exit-Entry Administration Bureau of Shanghai Public Security Bureau, Shanghai Branch of the People’s Bank of China, Shanghai Office of the State Administration of Foreign Exchange, Shanghai Customs District and Shanghai Entry-Exit Inspection and Quarantine Bureau on November 15, 2008.

Pursuant to the Opinions, a subsidy for establishment shall be given to any regional headquarter in the form of an investment company that is newly registered in or newly moved into Shanghai; a certain subsidy for renting office will be provided every year where such a regional headquarter rents any office for its own use and a lump sum of monetary subsidy based on the aforesaid standard shall be provided where such a regional headquarter buys or builds any office for its own use. However, no transnational company’s regional headquarter shall, during the period of enjoying the subsidy, lease or sublease the office or change the purpose of the office, or it shall refund the subsidy that it has already obtained. For a state-level regional headquarter of a multinational company that is determined by the Ministry of Commerce, it shall be given certain amount of reward according to annual business revenue.

The Opinions encourage the investment companies to establish finance companies according to the Measures for the Administration of Finance Companies of Enterprise Groups, so as to provide centralized financial management services to the investment enterprises it has set up in China.

As to the move of human resources, the Opinions has made provisions on simplification of entry-exit formalities, and employment formalities for foreigners, and facilitating introduction of domestic outstanding talents.

For any qualified multinational company’s regional headquarter as well as any R & D center of independent legal person established by the regional headquarter, the customs administration and the entry-exit inspection and quarantine administration shall facilitate the customs clearance of export and import goods.


Legal Practices

Whether the Shareholder’s Rights shall be Restricted if the Shareholder Has Not Fully Made the Contribution?

[Question] Company X is one of the shareholders of Company A. Company B is the controlling shareholder of Company A, whose shares are assigned from other original shareholders. However, the original shareholders that assigned the shares to Company B have not made the contribution, of which Company B has good knowledge. The stock transfer agreement between Company B and the original shareholders of Company A has confirmed such issues and requests Company B to assume the obligation of contribution. Company B controls Company A after acceptance of shares, but fails to made the contributions to Company A.

Does Company X, as one of the shareholders of Company A, have the right to request Company B to make the contributions, and to restrict Company B’s shareholder’s rights before the contribution is made?

[Reply] Legally speaking, the question involves the following two aspects: firstly, whether the shareholder who accepts the defective shares though he/she knows the defects has the obligation to make the contributions; secondly, whether the shareholder’s rights of the shareholder who fails to fully make the contributions shall be restricted.

As to the question whether or not the shareholder who accepts the shares from original shareholders who fails to fully make the contributions shall supplement the contributions, the Company Law of China has no clear provisions, neither the judicial interpretation has ever been issued by the Supreme People’s Court. And the courts have different attitudes towards such an issue in judicial practices. However, in this case, although the original shareholders of Company A fail to make the contributions to Company A, Company B obviously has knowledge of failure of original shareholders to make the contributions and the defects of the shares when accepting the shares of the original shareholders’ shares according to the stock transfer agreement. Therefore, Company B shall assume the legal liabilities to Company A for its failure to make the full contributions, i.e. supplement the contributions to Company A.

As to the question whether or not the shareholder’s rights of a shareholder who fails to fully make the contributions shall be restricted, the Company Law of China has no clear provisions, neither the judicial interpretation issued by the Supreme People’s Court. But Article 35 of the Company Law provides that dividends shall be distributed based on the percentages of the contribution actually made. When a company is going to increase the capital, its shareholders have the preemptive right to subscribe to the new contributions based on the same percentages of the actually made contributions. From this point, the right to obtain dividends and the preemptive right to subscribe are based on the percentage of actual contributions. A shareholder who has subscribed the contribution but fails to make actual contributions or fails to fully make the contributions shall only exercise the above rights on the basis of the percentage of the contributions actually made by him. Article 43 of the Company Law provides that the shareholders shall exercise their voting rights at the shareholders’ meetings based on their respective percentage of the contributions (unless otherwise prescribed by the articles of associations). Although this provision does not define whether the percentage of contribution refers to the percentage of subscribed contributions or contributions which have been paid, some scholars and lawyers believe that, it shall be the percentage of contributions that have actually been made by reference to Article 35 of the Company Law. Because although the failure of contribution by the shareholder does not influence the acquisition of shareholder qualifications, the premise to enjoy shareholder’s rights shall be the assumption of shareholder’s obligations as the rights and obligations of civil principals shall be reciprocal. Therefore, the exercise of shareholder’s rights shall be contingent on the percentage of contributions that have actually been made. From the legislation principle of the Company Law, the shareholders who have defects in contribution shall be restricted from exercising the shareholder’s rights. According to the provisions of the Company Law, the right to dividend, the preemptive right and the voting right of shareholders who fail to make the contributions shall be restricted accordingly. Certainly, this issue is still controversial in practice.

(Contact of Author:chambers@hllawyers.com


If the Trademark Registered Later Has Constituted Infringement, the Applicant may, rather than Applying for Cancellation of the Trademark, directly Sue to the Court

[Case]
Plaintiff: Swarovski Company Limited; Defendant: Beijing Swarov Wedding Photo Co., Ltd.; Cause of action: infringement on exclusive rights of registered trademarks and unfair competition. The Plaintiff claimed that it was founded in Austria in 1968 with its main business on production and sale of cut crystal products. Since 1980s, the Plaintiff entered into the market of mainland China and obtained the exclusive rights of the character trademark “SWAROVSKI” in 1987 and the character trademark “施华洛世奇” (“Shi Hua Luo Shi Qi” in English) in 1989, as well as other relevant figure or character trademarks upon the approval of State Trademark Office, which were approved to use in Classification 14, natural jewel, artificial jewel and other items. These trademarks were of high reputation and honors and were famous trademarks around the world. Still, the Plaintiff has also registered a series of trademarks such as “SWAROVSKI”, “SWAROV”, “施华洛世奇” (“Shi Hua Luo Shi Qi” in English) and “施华洛” (“Shi Hua Luo” in English) in many countries and regions in the world on commodities and services in more than 20 classifications. Since entering into the market of mainland China, the Plaintiff has established many branch stores in China to form a complete and mature sales network. Moreover, it had invested a lot in the brand and products promotion in the mainland of China, and obtained various awards from Chinese government and relevant organizations. In recent years, the Plaintiff had taken several measures to crack the infringing acts which were protected by the administration for industry and commerce. Therefore, the Plaintiff believed that its trademarks had actually been the famous trademarks in China and should be subject to trans-classification protection. The Defendant was a wedding photo chained enterprise whose headquarter was founded on March 21, 1999 in Taizhong city in Taiwan province. It entered into the market of mainland China in 2006 and established the flagship shops in Tianjin and Beijing in January and October of that year respectively. Without the consent of the Plaintiff, the Defendant intentionally used the registered trademarks of the Plaintiff and the characters that were similar to the registered trademarks of the Plaintiff in its trade name, company website, advertising and new products promotion, which has infringed on the exclusive rights of the trademarks of the Plaintiff. Besides, as the trade name and trademark of the Plaintiff were of high reputation, it was impossible that the Defendant, being an enterprise providing services that was affiliate to the products of the Plaintiff, had no knowledge of the trade name of the Plaintiff. However, it still used the characters “施华洛” (“Shi Hua Luo” in Chinese), imitating the trade name of the Plaintiff, as its own trade name when registering its trade name, and used the trademarks of the Plaintiff as the products name and decoration in advertisement in a conspicuous way. The Defendant obviously had the intention to utilize the reputation of the Plaintiff, to hitch a ride and therefore to mislead the relevant public, which have caused the relevant public to believe that there was certain connection between the Defendant (as well as its services) and the Plaintiff, and thus to confuse them on the sources of the services and in consequence constituted unfair competition.

The Defendant pled that: first, the legal representative of the Defendant Yang Yiguo applied the character and figure trademark (see below) to the State Trademark Office and obtained the exclusive rights of use (certificate number: 3746575). And the Defendant legally obtained the right to use such a trademark by authorization from Yang Yiguo. According to the laws in China, “if the lawsuit is filed by the plaintiff on the ground that a registered trademark used by other party on approved commodities is identical or similar to its trademarks registered in advance, the people’s court shall inform the plaintiff to apply for resolution to competent administrative departments according to Article 111 of the Civil Procedure law”. However, the Plaintiff directly brings lawsuit to the court before application for cancellation to the Trademark Review and Adjudication Board, which had violated the legal procedure; Secondly, the registered trademark used by the Defendant was of obvious differences with that of the Plaintiff: (a) the statutory classifications were different; (b) the trademarks were approved to use in different classification; and (c) there were certain differences in character, picture as well as the combination of character and picture between the registered trademarks of the Plaintiff and the Defendant. Therefore, the trademark registered and used by the Defendant had not infringed on the exclusive rights of the Plaintiff’s trademark.

[Judgment]
After trial, Beijing No.2 Intermediate People’s Court held that the trademarks “SWAROVSKI”, “施华洛世奇” (“Shi Hua Luo Shi Qi” in Chinese) and the like as registered by the Plaintiff were legal and effective and should be protected by China Trademark Law. Since the registration of trademarks, especially after entering into the China market, the Plaintiff had been using the trademarks “SWAROVSKI” and “施华洛世奇” (“Shi Hua Luo Shi Qi” in Chinese) and undertaking continuous and broad advertisement in respect of the above registered trademarks. The market share and sales volume of its products in China market ranked ahead in the same kind of commodities, obtained high reputation among the consumers and was known by the public. Still, its registered trademarks had been protected by China State Administration for Industry and Commerce for several times. Therefore, the people’s court held that the character trademarks “SWAROVSKI” and “施华洛世奇” (“Shi Hua Luo Shi Qi” in Chinese) shall be famous trademarks. Item 2 of Article 1 of the Interpretations of the Supreme People’s Court Concerning the Application of Laws in the Trial of Cases of Civil Disputes Arising from Trademarks provides that the acts involving copying, imitating or translating the registered famous trademark of another person or the major part thereof and using it on non-identical or dissimilar commodities as a trademark that has misled the general public and caused damage to the interests of the registrant of the famous trademark shall be the acts infringing on the exclusive rights of registered trademarks. Although the Defendant registered the trademark combining both character and figure (see left) in services relevant to wedding photo services, it had not used the trademark when providing the services in its registered way, but divided the registered trademark into parts and used the characters “施崋洛” (“Shi Hua Luo” in Chinese) or “施华洛”(“Shi Hua Luo” in Chinese) in a separate or conspicuous way in the front door, window of its shops or the pricelist, photo exhibition book, advertisement, website or the like. Besides, the Defendant has used the word “SWAROV”, but fails to provide evidences to prove the special meaning thereof. Therefore, the people’s court held that “施崋洛”(“Shi Hua Luo” in Chinese), “施华洛” (“Shi Hua Luo” in Chinese) and “SWAROV” were identical to the principal part of the registered trademarks “施华洛世奇” (“Shi Hua Luo Shi Qi” in Chinese) and “SWAROVSKI” of the Plaintiff, which was enough to cause confusions to the consumers. Although the services provided by the Defendant were different from those of the Plaintiff, this act committed by the Defendant had already harmed the relevant interests of the famous trademarks registered by the Plaintiff. As a result, the use of the characters “施崋洛”(“Shi Hua Luo” in Chinese), “施华洛”(“Shi Hua Luo” in Chinese) and “SWAROV” in a separate or conspicuous way had infringed on the exclusive rights owned by the Plaintiff to use the registered trademarks “施华洛世奇” (“Shi Hua Luo Shi Qi” in Chinese) and “SWAROVSKI”. As to the defenses of the Defendant, the people’s court held that, though there were the above provisions, “if the lawsuit is filed by the plaintiff on the ground that a registered trademark of another party is used on the commodities beyond the approved commodities or is used by change of obvious features, or by division or combination, which as a result is identical or similar to its registered trademarks, the people’s court shall accept the lawsuit”. Therefore, the people’s court did not accept the claims of the Defendant on the ground of the above provision and the fact of this case and held that the Defendant constituted infringement.

[Brief Analysis]
Article 32 of China Trademark Law provides that anyone applying for trademark registration may not damage the existing rights of other party obtained in advance, neither may it register, in advance, the trademark that has been used by others and has become influential. However, the law has not given definite provisions concerning the issue that the registered trademark has infringed on the existing prior rights of other party. In Practice, the trademark examination cannot completely avoid the infringement on other party’s prior rights; and the trademark registered later may infringe on the trademark registered in advance, i.e. the disputes between trademarks are not avoidable. In consideration of these disputes, the Supreme People’s Court issued the Provisions of the Supreme People’s Court on Issues Concerned in the Trial of Cases of Civil Disputes over the Conflict between Registered Trademark or Trade Name with Prior Right (implemented from March 1, 2008, the “Provisions”) to give more definite provisions in respect of such kind of disputes. Article 1 of the Provisions provides that “for a lawsuit filed on the ground that the character or figure used in the registered trademark of other party infringes on the plaintiff’s copyright, patent right for a design, right to a trade name or other prior rights, if the lawsuit conforms to Article 108 of the Civil Procedure Law, the people’s court shall accept the lawsuit. If the lawsuit is filed by the plaintiff on the ground that a registered trademark used by other party on approved commodities is identical or similar to its trademarks registered in advance, the people’s court shall inform the plaintiff to apply for resolution to competent administrative departments according to Item 3 of Article 111 of the Civil Procedure law. However, if the lawsuit is filed by the plaintiff on the ground that a registered trademark of another party is used on the commodities beyond the approved commodities or is used by change of obvious features, or by division or combination, which as a result is identical or similar to its registered trademarks, the people’s court shall accept the lawsuit.” According to this provision, if there is any dispute between two registered trademarks, the trademark right owner shall first apply to the State Trademark Office for cancellation of the trademarks that the applicant believes infringing according to Article 41 of the Trademark Law to evaluate if there is disputes thereof through administrative departments or if the trademark registered later shall be cancelled as it has infringed on the rights of the trademark registered in advance. If any party to the dispute is not satisfied with the cancellation decision made by the State Trademark Office, it may apply to the Trademark Review and Adjudication Board for re-examination. The Trademark Review and Adjudication Board shall then render a decision. Where any party is not satisfied with the decision made by the Trademark Review and Adjudication Board, it may bring an administrative suit before a people’s court against the decision made by the Trademark Review and Adjudication Board. However, if the right owner of the registered trademark irregularly uses the registered trademark, the applicant may, rather than being restricted by the above process, directly sue to the people’s court to solve the dispute in a judicial way. Therefore, right owner of the trademark shall, when asserting the liability for tort, make sufficient investigation to confirm the method to use the trademark by the later registrant, so as to avoid the mistake in looking for judicial relief.

(Contact of Author:juliazhu@hllawyers.com)


Construction Engineering Project Contracts subject to Bid Invitation Legally must be under Bid Invitation
[Case]
In 2004, one construction company in Shanghai (the Contractor) concluded a Construction Engineering Project Contract (hereinafter the “Contract”) with one real property development company in Jiangsu province (the Developer), in which the Developer directly contract one apartment construction project to the Contractor. In 2008, the parties to the Contract resort to local people’s court for disputes arising out of project payments. In the procedure, one party claimed that the Contract “shall be null and void as the project is a residential building project subject to bid invitation but it fails”, the other party defended although the Contract was subject to bid invitation, local municipal bidding office and provincial bidding office had ever issued a written statement which provided that commercial residential building projects constructed by self-owned funds may not be subject to bid invitation, therefore, the Contract shall be effective.

[Analysis]
Article 3 of the Law on Bid Invitation and Bidding provides that the following construction projects to be undertaken within the territory of the People's Republic of China, including the surveying, design, construction and supervision of such projects as well as the purchase of key equipment and materials for such projects, shall be subject to bid invitation:
(1) large infrastructure and public utility projects that concern public interests and security;
(2) projects invested completely or partly with State-owned funds or financed by the State; and
(3) projects using loans or aid funds from international organizations or governments of other countries.

The specific scope and scale standards of the above projects subject to bidding shall be promulgated by the development planning department under the State Council, together with the relevant departments under the State Council, and be submitted to the State Council for approval.

Upon the above authorization by the laws as well as the approval by the State Council, the National Development and Planning Commission under the State Council (now the National Development and Reform Commission) promulgated the Provisions on the Bidding Scope and Scale Standards for Engineering Construction Projects (hereinafter “the Provisions”) on May 1, 2000 to confirm the contents that shall be subject to Article 3 of the Law on Bid Invitation and Bidding. Item 5 of Article 3 of the Provisions provides that “commercial residential buildings, including economic houses” shall be “public utility projects that concern public interests and security” as provided in Article 3 of the Law on Bid Invitation and Bidding and shall be subject to the bid invitation according to the laws.

As the content of the Contract is “apartment construction project”, which is within the scope of commercial residential building, the Contract shall be subject to bid invitation according to the above laws and regulations, i.e. the claim by one party in the procedure that the Contract shall be null and void is of sufficient legal basis and shall be supported. The question is how to recognize the validity of the statement issued by local bidding office.

Article 10 of the Provisions provides that “people’s government of various provinces, autonomous regions and municipalities directly under the Central Government may, according to the actualities, make the concrete scope and scale standard that shall be subject to bid invitation within its own region, however, it shall not narrow the scope confirmed by this Provisions that shall be subject to bid invitation”. The following conclusions can be reached according to the above provision: firstly, the local government shall have the right to issue the statement; secondly, the statement herein shall be null and void as it has narrowed the scope of the content subject to bid invitation, which has violated the authorization. Therefore, the defenses claimed by the other party shall not be supported as it has violated the provisions of relevant laws and regulations.

Pursuant to Item 3 of Article 1 of the Interpretation of the Supreme People’s Court on the Issues Concerning Application of Law for the Trial of Cases on Disputes over Construction Projects Engineering Contracts, “for any construction project that must be under bid invitation, if no bid is invited or if the bid is invalid”, it shall be invalidated in accordance with Item 5 of Article 52 of the Contract Law. Therefore, the Contract shall be null and void in this case.

[Summary]
In practices, many construction companies incline to, when undertaking the projects in other cities, avoid the bid invitation because of the preferential policies provided by local government. We hereby remind the construction companies although local government may promise that the construction project may be contracted without bid invitation, the projects legally subject to bid invitation shall still be invited for bidding, or the construction companies may face such legal risks as the construction project engineering contract may be null and void.

We believe that the reason why construction companies incline to avoid the bid invitation is that the process of bidding is complicated and complex, which will cost quite a lot of time and energy. In respect of the above issues, it is suggested that construction companies may, under possible circumstances, consult with local government to use the invited biding that are relatively simpler than public invitation, which may avoid not only the complex processes of public invitation, but also the risks that the contract may be null and void if no bid invitation has been undertaken.

(Contact of Author: mickyma@hllawyers.com


Illegal Dismissal of Employee Does Not Merely Mean Double Payment of Economic Compensations
Article 87 of the Labor Contract Law provides where the employer dissolves or terminates the labor contract in violation of the provisions of this Law, it shall pay the compensation on the ground of twice the economic compensation as provided in Article 47 of this Law to the employee. It is to say that, if the employer illegally dismisses the employee, the employee may, pursuant to the provisions of the Labor Contract Law, claim for double payment of economic compensations as the compensation for illegal dismissal on the basis of the working years of the employee. However, this provision does not mean that if the employer illegally dismisses the employee, it can solve the problem by merely paying twice the economic compensations, as Article 48 of the Labor Contract Law has also granted the right to the employee to adopt to recover the employment relationship.

After the implementation of the Labor Contract Law, many employers have not completely known the meanings of above provisions and mistakenly believed that even if the employer does not have sufficient ground to dismiss the employee, the worst is only to pay twice the economic compensations. In consequence, the employer has made wrong judgment and decision, which causes the employer to face unfavorable arbitrations or litigations. Many labor disputes handled by our firm recently have encountered the above question.

In October 2000, Ms. Wang concluded a Labor Contract without fixed term with one big software company (hereinafter “Software Company”). In May 2008, the Software Company sent a notification to Ms. Wang to “terminate the employment relationship”, saying that as the objective situation on which the conclusion of the original Labor Contract was based had changed considerably, the Labor Contract could not be performed and as no agreement on changing the Labor Contract was reached after negotiations between the Software Company and Ms. Wang, it so decided to terminate the employment relationship and agreed to pay economic compensations as well as the payment in lieu of notice. After receiving the dismissal notice, Ms. Wang applied for arbitration to the labor arbitration commission and requested that the Software Company continue to perform the Labor Contract between them and meanwhile pay the salary, bonus, subsidy and other revenue counting from the date of termination of employment relationship to the date of recovery of employment relationship. The Software Company defended in the trial that: (a) the working performance of Ms. Wang was declining steadily and her performance review of the year 2007 was unqualified, therefore, Ms. Wang was incompetent to her position; (b) the Software Company was undertaking internal reconstruction and the position for Ms. Wang had been cancelled, therefore, it was not possible to continue to perform the contract; and (c) the Software Company agreed to pay twice the economic compensations. To support the reasons of dismissal, the Software Company provided the following evidences: (a) the review record of Ms. Wang and the mails between the Software Company and Ms. Wang to prove that Ms. Wang was incompetent to her position; (2) the statement of the reconstruction of the Software Company and the certificate presented by the head of the department, to prove that the objective situation of the Software Company had changed considerably; (c) the testimony of the employees of the Software Company, to prove that the relationship between the Software Company and Ms. Wang had broken and therefore the employment relationship could not be recovered. After examination, the labor arbitration commission held that the unqualified review result was not the reason setout by the Software Company in the dismissal notification. The Software Company terminated the Labor Contract on the ground of considerable change of objective situation, however, it failed to provide the evidences thereof. Therefore, the termination of employment by the Software Company should be illegal. As Ms. Wang claimed to recover the employment relationship other than the payment of twice the economic compensations, therefore, the Software Company should not dismiss the employee even if it agreed to make the compensations. As a result, the labor arbitration commission ordered to recover the employment relationship and the company should pay the full amount of the salaries during the period of arbitration. 

In this case, the Software Company used to believe that the worst situation would be that the labor arbitration commission requests to pay economic compensations; however, the labor arbitration commission ordered the Software Company to recover the employment relationship and pay the salaries during the period of arbitration. As the term to settle the disputes was of long period, the Software Company not only failed to dismiss the employee, bur also paid a high amount of salaries, which is not worth the candle.

It can be seen from the above case that, the employer shall, before dismissing any employee, look for reasonable premises and collect reasonable evidences. If it is hard to find reasonable evidences, it would be better to consult with the employee to terminate the employment relationship by mutual agreement, especially with those of high salaries. Although the Labor Contract Law provides that the calculation basis for the economic compensations or indemnification to the employee of high salaries is limited to triple the amount of the average salary of local employees, the employee of high salaries may claim to recover the employment relationship and pay the salaries during the period of illegal dismissal. Such a method has been used by a lot of employees of high salaries. Therefore, it is suggested that the employer shall, when disposing of the dismissal issues with employees, especially with the employees of high salaries, adopt to take consultations to reach mutual agreement as far as possible other than taking careless unilateral dismissal decisions, so as to prevent the risk to face more serious losses and more huge legal risks.

  (Contact of' ;&,淝"鴙IE' ;&,淝"鴈vincheng@hllawyers.com">kevincheng@hllawyers.com)