Haworth & Lexon Law Newsletter
No.1 2010 (Total:No.97) February.5th, 2010
Edited by Haworth & Lexon
Haworth & Lexon Law Newsletter is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, E-commerce, International trade etc. with necessary comment. All the comments do not mean the legal opinion of our firm and the firm does not have any legal liability for such comment. Should you have any interest in any topics or any questions please feel free to contact the firm. You will be expected to have satisfactory response from the professional attorney of our firm.
Latest Laws and Regulations:
The Tort Law Has Been Promulgated.
The Interpretation of the Supreme Peoples Court on Several Issues concerning the Application of Law in the Trial of Patent Infringement Dispute Cases.
Circular on Strengthening Administration of Enterprise Income Tax on Non-Resident Enterpises Equity Transfer Income.
Circular of the Ministry of Finance and State Administration of Taxation on relevant Issues concerning Tax Credit on the Offshore Income
Circular of the Ministry of Finance, State Administration of Taxation and China Securities Regulatory Commission on Collection of Individual Income Tax for Individuals Transfer of Restricted Shares of A Listed Company.
Regulations of the Supreme Peoples Court on relevant Issues concerning Trial of Administrative License Cases.
Several Provisions on Protection of Information on Service Outsourcing Business Undertaken by Domestic Enterprises.
Opinions of the Ministry of Commerce and the Ministry of Science and Technology on Encouraging Technology Export.
Guiding Opinions on Accelerating Development of National High-tech Industrial Base.
Trial Measures for Approval and Registration of Debt-for-Equity Swap for Foreign-Invested Enterprises in Shanghai.
The Notice on Issues concerning the Enforcement of Hong Kong SAR Arbitration Awards in the Mainland.
Latest Laws and Regulations
The Tort Law Has Been Promulgated
The Tort Law has been promugated by the Standing Committee of the National Peoples Congress on December 26, 2009 and shall come into force on July 1, 2010.
The Tort Law has 92 Articles in 12 Chapters, which are General Provisions, Constituting Liability and Methods of Assuming Liability, Circumstances to Waive Liability and Mitigate Liability, Special Provisions on Tortfeasors, Product Liability, Liability for Motor Vehicle Traffic Accident, Liability for Medical Malpractice, Liability for Environmental Pollution, Liability for Ultrahazardous Activity, Liability for Harm Caused by Domestic Animal, Liability for Harm Caused by Object and Supplementary Provision. This Newsletter will focus on the first fouor Chapters, and the left Chapters will be introduced in the following Newsletters.
The Tort Law has provided the the principle of fault liability, i.e. one who is at fault for infringement upon a civil right or interest of another person shall be subject to the tort liability. However, there are exceptions: one who shall assume the tort liability for infringing upon a civil right or interest of another person, whether at fault or not, as provided for by law, shall be subject to such legal provisions. Still, one who is at fault as construed according to legal provisions and cannot prove otherwise shall be subject to the tort liability.
According to the Tort Law, the victim of a tort shall be entitled to require the tortfeasor to assume the tort liability. Where the assets of a tortfeasor are not adequate for payments for the tort liability and administrative liability or criminal liability for the same conduct, the tortfeasor shall first assume the tort liability. The methods of assuming tort liabilities shall include: cessation of infringement, removal of obstruction, elimination of danger, return of property, restoration to the original status, compensation for losses, apology and elimination of consequences and restoration of reputation. The above methods of assuming the tort liability may be adopted individually or jointly.
The Tort Law confirms that where any harm caused by a tort to a personal right or interest of another person inflicts a serious mental distress on the victim of the tort, the victim of the tort may require compensation for the infliction of mental distress. Still, it further confirms that where the same tort causes the deaths of several persons, a uniform amount of death compensation may be determined.
Accordign to the Tort Law, the circumstances to waive liability and mitigate liability include: (1) where the victim of a tort is also at fault as to the occurrence of harm, the liability of the tortfeasor may be mitigated; (2) the actor shall not be liable for any harm that is caused intentionally by the victim; and (3) where any harm is caused by a third party, the third party shall assume the tort liability. Besides, where any harm to another person is caused by a force majeure or any conduct of necessity or self-defense, the liability may be mitigated or waived.
As to the network infringement, the Tort Law provides that: the network user or network service provider who infringes upon the civil right or interest of another person through network shall assume the tort liability. Where a network user commits a tort through the network services, the victim of the tort shall be entitled to notify the network service provider to take such necessary measures as deletion, block or disconnection. If, after being notified, the network service provider fails to take necessary measures in a timely manner, it shall be jointly and severally liable for any additional harm with the network user. Where a network service provider knows that a network user is infringing upon a civil right or interest of another person through its network services, and fails to take necessary measures, it shall be jointly and severally liable for any additional harm with the network user.
The Interpretation of the Supreme Peoples Court on Several Issues concerning the Application of Law in the Trial of Patent Infringement Dispute Cases
The Interpretation on Several Issues concerning the Application of Law in the Trial of Patent Infringement Dispute Cases (hereinafter the Interpretation) has been promugated by the Supreme Peoples Court on December 28, 2009 and shall come into force on January 1, 2010.
The Interpretation has 20 Articles regarding the major legal issues of the application of law in the trial of patent infringement disputes, which include: the protection scope of invention and utility model patent and the principle for recognition of infringement, the principle for recognition of design patent infringement, the defense of existing technology and the application of defense on the right of prior use, the acceptance of a case confirming ones act as not infringing the patent, and etc.
It is provided by the Interpretation that if the right holder alters the claim asserted by him before the end of court debate of the first instance, the peoples court shall permit such alteration. The peoples court shall determine the content of a claim according to the description of the claim and in consideration of the understanding of the claim by regular technicians in the same field after reading the specification and drawings. The peoples court may interpret a claim based on the specification and drawings, relevant claim in the claims, and patent review files. If the meaning of a claim cannot be clarified even by the approaches above, the claim may be interpreted according to reference books, textbooks and other public literatures and the common understanding on the part of regular technicians in the same field. Where a right holder includes a technical solution, which is described only in the specification or drawings rather than in the claims, or to which the patent applicant or patentee has abandoned through an amendment of claims or specification or through a statement in the patent granting or invalidation procedure, in the scope of protection of a patent in a patent infringement dispute case again, the peoples court shall not support it.
As to the recognition of design patent infringement, it is provided that where a design identical or similar to a design patent is applied to a type of products identical or similar to the products carrying the design patent, the peoples court shall determine that the alleged infringing design falls into the scope of protection of a design patent, i.e. the scope of protection of the patent right for design shall be determined by the product incorporating the patented design as shown in the drawings or photographs. The peoples court shall determine whether designs are identical or similar based on a regular consumers knowledge and cognitive ability as to a product carrying a design patent, and shall consider the design features of the patented design and the alleged infringing design and the overall visual effect of the design to draw an integrative conclusion.
As to the defense of prior use, it is provided that if an alleged infringer invokes a defense of rights of prior use of a technology or design acquired illegally, the peoples court shall not support it. Where a holder of prior use rights assigns his technology or design which he has already implemented or for the implementation of which he has made necessary preparations to another person or licenses another person to implement the same after the patent application date, if the alleged infringer argues that such an act of implementation is an act of continued implementation within the original scope, the peoples court shall reject such an argument, unless the technology or design is assigned or succeeded to along with the original enterprise.
Where a right holder gives a warning of patent infringement to another person, the person warned or the person of interest reminds in writing the right holder of exercising his right to sue, the right holder neither withdraws the warning nor files a lawsuit within one month after receipt of the written reminder or within two months after the written reminder is sent, and the person warned or the person of interest files a lawsuit with the peoples court to request a confirmation of his act as not infringing the patent, the peoples court shall accept such a case.
Where an alleged patent infringement occurred before October 1, 2009, the peoples court shall apply the Patent Law before amendment; or where it occurs after October 1, 2009, the peoples court shall apply the Patent Law as amended. Where an alleged patent infringement occurred before October 1, 2009 and lasts beyond October 1, 2009, and the infringer shall assume the compensatory liability under the Patent Law before amendment and the Patent Law as amended, the peoples court shall determine the amount of compensation by applying the Patent Law as amended.
Circular on Strengthening Administration of Enterprise Income Tax on Non-Resident Enterpises Equity Transfer Income
The State Administration of Taxation promulgated, on December 10, 2009, Circular on Strengthening Administration of Enterprise Income Tax on Non-Resident Enterpises Equity Transfer Income (hereinafter, Circular), which shall come into force from January 1, 2008.
Equity Transfer Income referred to in the Circular shall mean the income obtained from transfer of equity in a Chinese resident enterprise by a non-resident enterprise, which shall not include those shares of the Chinese resident enterprise bought and sold on the public securities market. Where a withholding agent fails to withhold in accordance with law or is unable to perform withholding obligations, a non-resident enterprise shall, within seven days from the date of equity transfer as stipulated in the contract or agreement (if the transferor obtains the equity transfer income in advance, the date should be the actual date when the equity transfer income is obtained), declare and pay enterprise income tax at the competent taxation authority (the taxation authority which takes charge of the collection and management of enterprise income tax on the resident enterprise) of the place where the Chinese resident enterprise whose equity is transferred is located.
Where a foreign investor (the actual controlling party) indirectly transfers the equity in a Chinese resident enterprisey, if the tax rate of the jurisdition where the transferred overseas holding company is located is less than 12.5% or the aforesaid country (region) does not levy income tax on its residents overseas income, then within thirty days after the equity transfer contract is executed, the foreign investor shall provide to the competent taxation authority where the Chinese resident enterprise whose equity is transferred is located the equity transfer contract or agreement, the relationship between the foreign ivestor and the transferred overseas holding company in terms of fund, business, procument and etc., the business operation, personnel, accounting and assets of the overseas holding company transferred by the foreign investor, the relationship between the overseas holding company transferred by the foreign investor and the Chinese resdent enterprise in terms of fund, business, procument and etc., and a statement of reasonable commercial purpose on transfer of the overseas holding company by the foreign investor. The foreign investor (the actual controlling party) indirectly transfers the equity in the Chinese resident enterprise through abusing organization forms without any reasonable commercial purpose to avoid paying enterprise income tax, the competent taxation authority may, after reporting level by level to the State Administration of Taxation for examination, redefine the transaction of equity transfer according to the economic substance and deny the existence of the overseas holding company used for tax arrangement.
Circular of the Ministry of Finance and State Administration of Taxation on relevant Issues concerning Tax Credit on the Offshore Income
The Ministry of Finance and State Administration of Taxation promulgated, on December 25, 2009, the Circular of the Ministry of Finance and State Administration of Taxation on relevant Issues concerning Tax Credit on the Offshore Income, which shall come into effect from January 1, 2008.
The enterprise shall, after accurately calculating the following items relevant to the offshore income tax credit for the relevant period, decide on the actual offshore income tax amount and the credit limitation with regard to the different countries (regions): taxable domestic income and taxable offshore income with regard to the different countries (regions), offshore income tax credit with regard to the different countries (regions), and offshore income tax credit limitation with regard to the different countries (regions). If the enterprise fails to accurately calculate the the actual offshore income tax amount with regard to the different countries (regions), then the tax paid in the relevant countries (regions) shall not be offset from the tax payable for the relevant period, neigher shall it be carried over to the following years for offset.
In calculating the offshore taxable income, if the resident enterprise sets up any offshore branch which has no independent tax status, the taxable income shall be the balance between the total offshore income minus all reasonable expenses relevant to obtain this offshore income.
In calculating the tax credit for income tax already paid offshore and indirectly borne, if income tax already paid offshore and indirectly borne by the enterprise according to relevant regulations is lower than the credit limitation of that country(region) for the then current year, then the income tax shall be credited from the total payable tax as offshore income tax credit; if exceeds the credit limitation, then the credit limitation shall be credited as the offshore income tax credit for the then current year, concerning the balance exceeding the credit limitation shall be, within the consecutive five tax years from the next year, the credit limitation of each year shall be credited against the payable tax.
Circular of the Ministry of Finance, State Administration of Taxation and China Securities Regulatory Commission on Collection of Individual Income Tax for Individuals Transfer of Restricted Shares of A Listed Company
The Ministry of Finance, State Administration of Taxation and China Securities Regulatory Commission promulgated, on December 31, 2009, the Circular on Collection of Individual Income Tax for Individuals Transfer of Restricted Shares of A Listed Company (hereinafter, Circular).
The Circular provides that from January 1, 2010, for the income from individuals transfer of restricted share, the individual income tax shall be levied at the rate of 20% according to the item of assets transfer income. And individual income tax shall continue to be exempted on income obtained from transfer of publicly offering of the listed companies and transfer of shares of listed companies obtained on the market through Shanghai Stock Exchange and Shenzhen Stock Exchange.
The restricted shares shall refer to (1) the non-tradable shares held by the shares after completion of share trading reform of the listed companies and before the date of trading resumption of the shares, and the gift shares or converted shares arising from the above shares from the date of trading resumption of the shares to the ban lifting date; (2) the restricted shares arising from initial public offer by the company after share trading reform in 2006, and the gift shares or converted shares arising from the above shares from the public listed date to the ban lifting date; (3) other restricted shares mutually determined by the Ministry of Finance, Genearl Administration of Taxation, Legal Affairs Office and China Securities Regulatory Commission.
The individual income tax obtained from the transfer of resitricted shares shall be collected by the way of being withheld by the securities institutes, and declared by the taxpayer and directly withheld by the securities institutes. According to the technology and preparation of the securities institutes, different collection measures shall be provided on the restricted shares accrued at different stages.
Regulations of the Supreme Peoples Court on relevant Issues concerning Trial of Administrative License Cases
The Supreme Peoples Court promulgated, on December 14, 2009, the Regulations on relevant Issues concerning Traial of Administrative License Cases, which shall come into effect on January 4, 2010. These Regulations shall prevail if the judicial interpretations made by the Supreme Peoples Court are conflicting with these Regulations.
When a national, legal person or other entities consider that the administrative license decision and relevant omission by the administrative organs, and the specific administrative actions of the administrative organs made on change, renewal, withdrawal or cancellation of the administrative licenseand relevant omission, or failure of the administrative organs to issue administrative license decision or provide administrative license supervision and check records infringes on their lawful rights and interests, the peoples court shall accept the case accordign to the laws.
The court will not recognize if the other administrative decision or documents which are the basis of the sued adminitrative actions obviously lack factual or legal grounds or have any ultra vires action.
If the defendant fails to provide the evidence or provides the evidence beyond the time limit, then the third party who has interest with the sued administrative license may provide to the court; if the evidence can not be provided by the third party, the third party may apply to the court for investigation and production; the court may also investigate and produce the evidence ex-officio if it is relevant to the state interest, public interest or lawful interest of others, though the parties concerned has no objection. If the evidence provided by the third party or produced by the court proves that the administrative license is lawful, the court shall reject the application of the plaintiff.
In principle, the court may try the administrative license cases according to the new laws; however, if the administrative organs, during the effective period of the old laws and regulations, delays the examination of the application for license until the implementation of the new laws and regulations without due reasons, and the application of new laws and regulations is not beneficial to the applicants, then the old laws and regulations shall prevail. If the sued administrative license decision violates the then effective laws and regulations and conforms to the new laws and regulations, the judgment shall affirm that the decision is illegal; if the permit of the administrative license decision does not damage the public interests or lawful rights and interests of the relevant parties who have interests, then the application shall be rejected by the judgment.
Several Provisions on Protection of Information on Service Outsourcing Business Undertaken by Domestic Enterprises
The Several Provisions on Protection of Information on Service Outsourcing Business Undertaken by Domestic Enterprises (hereinafter referred to as the “Provisions“) were issued by Ministry of Commerce and Ministry of Industry and Information Technology on Dec.28, 2009, which shall come into force on Feb.1, 2010.
Pursuant to the Provisions, “confidential information“ refers to the business information or data meeting the following conditions: (1) The information or data are obtained by a contractor from the contract-issuer in undertaking service outsourcing business; (2) The contract-issuer has taken confidentiality measures for the information or data which are unknown to the public; and (3) The contractor shall be obliged to keep confidential the information or data under the contract. A contractor and any of its shareholders, directors, supervisors, managers and employees shall perform the confidential obligations.
According to the requirement of the Provisions, the contractor shall set up an information protection department or designate full-time personnel to be responsible for working out information protection rules and regulations of its own, and take the following reasonable, specific and effective confidentiality measures for confidential information, including: restricting the scope of personnel who have access to confidential information; taking technical and physical control of carriers and storage places of confidential information so as to prevent the information from being improperly accessed to or acquired by others; conducting classified management of the record carriers of confidential information; keeping the important information such as formula, content, procedures and steps through encrypting or keeping it in restricted areas; using passwords to confidential information carriers; etc.
The contractor shall also ensure information security through concluding confidentiality agreements or non-competition agreements with its employees especially personnel who have access to confidential information, and shall strengthen the information security training for employees, enhance the confidentiality awareness of employees to avoid the accidents of disclosure of confidential information.
Opinions of the Ministry of Commerce and the Ministry of Science and Technology on Encouraging Technology Export
The Opinions of the Ministry of Commerce and the Ministry of Science and Technology on Encouraging Technology Export (the “Opinions“) were released on Dec.7, 2009.
The Opinions have stipulated some regulations to encourage technologies export by enterprises, includinig:
1. encouraging the export of mature industrialized technologies actively: the government shall support enterprises to export their technologies (those not included in the Catalog of Exports which Are Prohibited or Limited in China) through trade, investment or economic/technical cooperation, including assignment of patent, assignment of patent application, patent exploitation license, technical secret license, technical service, technical consulting, etc;
2. providing financial and insurance support actively: the government shall study and formulate credit and insurance products that correspond with the characteristics of the exporters of technology and meet their real demand, so as to broaden their financing channels and expand their financing capacity; encouraging insurance companies to provide foreign exchange receipt assurance, debt collection service and insured trade financing facilitation for technology exports, those with complete equipment in particular.
The Opinions also encourage international technical cooperation by enterprises, such as
1. Supporting scientific research institutions to undertake overseas R & D projects: the government shall further encourage transnational companies to establish R & D institutions in China and entrust these institutions to research and develop technologies, encourage universities and scientific research institutions to undertake overseas R & D projects, cultivate technicians and researchers, strengthen their R & D capacity, and explore the international market, and shall encourage enterprises to reinforce their contact with overseas enterprises, universities or scientific research institutions and support their joint R & D efforts.
2. The government shall also encourage and support technical enterprises to engage in foreign-related cooperation by investing abroad, undertaking overseas projects and contributing technologies and intellectual property rights to become shareholders; encourage technical enterprises to merge and acquire overseas high-tech enterprises and establish overseas R & D institutions to drive China’s technology and service export.
In the field of service trade, the Opinions also emphasize that the government shall promote independent innovation, increase the technical content of service export, and strengthen the establishment of technical export service system.
Guiding Opinions on Accelerating Development of National High-tech Industrial Base
The Guiding Opinions on Accelerating Development of National High-tech Industrial Base were promulgated by the National Development and Reform Commission on Dec.16, 2009.
National High-tech Industrial Base refers to those characteristic high-tech industrial centralized areas in the field of information technology, biology, aeronautics and astronautics , new material, new energy and ocean technology, etc., which have been certified by the National Development and Reform Commission, and play a supporting, demonstrative and leading role in high-tech development and regional economic development. National High-tech Industrial Base includes specialized national high-tech industrial base and comprehensive national high-tech industrial base.
The local government shall, pursuant to the local financial capacity and actual situation, set up special fund to support the establishment of national high-tech industrial bases, and provide assistance in handling the relevant formalities of obtaining land and environment approval for the projects in the national high-tech industrial bases. The National Development and Reform Commission will provide certain fund to the establishment of basic facility for innovation capacity of the national high-tech industrial bases, their public service conditions, as well as industrialization projects; and will support the IPO projects of those enterprises in the national high-tech industrial bases, which meet the statutory requirements, in domestic main board, small SMEs board and GEMs board.
Application for the setting up of a national high-tech industrial base shall be prepared and submitted by a provincial development and reform commission, upon the approval of the provincial government, to the National Development and Reform Commission. The experts in the fields of economy and technology of the National Development and Reform Commission will evaluate the application in the aspects of function positioning, scale of the industry, increase capacity, innovation capacity, and the extent of internationalization. When such application has passed the evaluation, the national high-tech industrial base will be certified by the National Development and Reform Commission.
Trial Measures for Approval and Registration of Debt-for-Equity Swap for Foreign-Invested Enterprises in Shanghai
The Trial Measures for Approval and Registration of Debt-for-Equity Swap for Foreign-Invested Enterprises in Shanghai (the “Trial Measures”) were issued by Shanghai Administration of Industry and Commerce and Shanghai Municipal Commission of Commerce on Nov.12, 2009, which shall come into force on the date of promulgation.
The debt-for-equity swap shall mean the act of foreign shareholders of a foreign-invested enterprise established in Shanghai (hereinafter referred to as the “invested enterprise”) to increase the registered capital of the invested enterprise or change the way of contribution with the lawful foreign debt in spot exchange owed by the enterprise to them as contribution.
Pursuant to the Trial Measures, to apply for debt-for-equity swap, an invested enterprise shall meet the following conditions: (I) The issue has been agreed upon unanimously by all shareholders of the invested enterprise; (II) Its registered capital has been paid-up as scheduled; (III) Where more than two creditors are involved in the debt used as contribution, it shall be agreed upon unanimously by all creditors; and (IV) The debt used as contribution shall meet the requirements of foreign exchange control of the state and shall be approved.
The invested enterprise and the creditors may stipulate in the Debt-for-Equity Swap Agreement that the debt concerned will in whole or in part be swapped for equity in the invested enterprise. Where a same debt involves more than two creditors, the debt which is enjoyed by all or part of the creditors (only limited to foreign shareholders of the invested enterprise) may be swapped for equity in the invested enterprise with the unanimous agreement of all creditors of the debt. The registered capital increased in form of debt-for-equity swap may not be paid in installments. The invested enterprise shall apply for handling the modification registration of the registered capital and the paid-up capital altogether.
To apply for debt-for-equity swap, the invested enterprise shall get the approval of the commercial authority and go through relevant procedures in accordance with the provisions of the state on foreign exchange control before applying to the industrial and commercial authority for going through the modification registration procedures.
The Notice on Issues concerning the Enforcement of Hong Kong SAR Arbitration Awards in the Mainland
The Notice on Issues concerning the Enforcement of Hong Kong SAR Arbitration Awards in the Mainland has been promugated by the Supreme People’s Court on December 30, 2009.
According to the Notice, where a party applies to the people’s court to enforce a interim arbitration award made in the Hong Kong SAR, or a arbitration award made by ICC and other foreign arbitration commissions in Hong Kong SAR, the people’s court shall conduct the examination according to the Arrangement bewteen the Mainland and Hong Kong SAR on Mutual Enforcement of Arbitration Awards. Any arbitration award that does not fall under the circumstances as provided in the Article 7 of the Arrangement shall be enforced in the Mainland. The Article 7 of the Arrangement has provided five circumstances that are unavailable for enforcement, including: the party to the arbitration agreement is a person with no capacity according to the applicable law; or the arbitration agreement shall be invalid according to applicable law, or the abitration agreement shall be invalid accordign to the law at the place of the arbitration award if no specific applicable law is specified; or the applying party has not received any suitable notice from the arbitrator or fails to represent the opinions for reasons, and etc.