Haworth & Lexon Law Newsletter
No.6 2010 (Total:No.102) July.15th, 2010
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:

Latest Laws and Regulations:

Decision of the State Council on the Fifth Group of Items Subject to Administrative Examination and Approval to Be Cancelled or Adjusted.

Administrative Measures for Payment Services Provided by Non-financial Institutions.

Tentative Provisions of Ministry of Commerce on Implementing Divestiture of Assets or Business in Concentration of Undertakings.

Guiding Opinions of the Ministry of Commerce on Promoting the Healthy Development of Online Shopping.

Guiding Opinions of the State Administration for Industry and Commerce on Implementing the Tentative Measures for Administration of Online Commodity Trade and Related Service Activities.

Circular of State Administration of Foreign Exchange on Adjusting the Approval Authority for Foreign Exchange Business with Respect to Some Capital Projects.

Supplementary Circular of the State Administration of Taxation on Issues Related to the Measures for Administration of Non-Resident's Enjoyment of Treatment under Taxation Agreement (Trial Implementation).

Circular of the Supreme People's Court on Issues Concerning Application of the Tort Law of the People's Republic of China.

Notice of the Supreme People¡¯s Court, the Supreme People¡¯s Procuratorate, the Ministry of Public Security, the Ministry of State Security and the Ministry of Justice on Issuing the Provisions on Several Issues Concerning the Examination and Judgment of Evidence in Death Sentence Cases and the Provisions on Several Issues Concerning the Exclusion of Illegal Evidence in Criminal Cases.

Legal Practices:

How to Sign the Contract for Labour Service and Matters that Attention Shall Be Paid to.

The Registered Trademark ¡°ÓÅÅÌ¡± Was Cancelled and Netac Company Has Re-instituted the Administrative Litigation.

Key Points to Reviewing Non-competition Economic Compensation Clauses.

Analysis on New Rules of Domestic Natural Persons Establishing Sino-Foreign Equity Joint Ventures and Sino-Foreign Cooperative Joint Ventures.

Latest Laws and Regulations

Decision of the State Council on the Fifth Group of Items Subject to Administrative Examination and Approval to Be Cancelled or Adjusted

The Decision on the Fifth Group of Items subject to Administrative Examination and Approval to Be Cancelled or Adjusted has been promulgated by the State Council on July 4, 2010 regarding 184 items that are subject to administrative examination and approval. There are 113 items that would be cancelled, which include:

Specific examination and approval (record) regarding internet electronic bulletin service £¨Ministry of Industry and Information Technology£©
Examination and approval (having no specific requirements) with respect to establishing branch companies in China by foreign invested companies (Ministry of Commerce)
Examination and approval with respect to changing the name, registered place or the investor¡¯s name of foreign invested companies (Ministry of Commerce)
Examination and approval with respect to establishing permanent institution in China by foreign travel agency (National Tourism Administration)
Examination and approval regarding the establishment, change, and termination of representative office in China by overseas non-bank financial institutions (China Banking Regulatory Commission)
There are 71 items that have been adjusted, which include:

Examination and approval regarding the change of registration items (excluding changes for going public) by foreign invested stock equity company (excluding listed companies), being adjusted to commercial administration at or below provincial level
Examination and approval regarding the establishment & change of registration items of foreign invested stock equity companies below the limited amount (adjusted to commercial administrations at provincial level, and the commercial department of semi-provincial municipalities)
Examination and approval regarding the increase of registered capital of foreign invested enterprise above the limited amount (excluding that regulated by specific provisions), but the increase of registered capital shall not exceed the limited amount (adjusted to commercial administrations at provincial level)
Examination and approval regarding the material changes (excluding the increase of registered capital above the limited amount and the transfer of controlling equity to foreign investors that shall be subject to the approval of State Development and Reform Commission) of foreign invested enterprises (excluding that regulated by specific provisions)(adjusted to commercial administrations at provincial levels)
Examination and approval regarding the acquisition by foreign investor with the trading amount below the limited amount (excluding foreign invested enterprises that are regulated by specific provisions) (adjusted to commercial administrations at provincial levels)
Examination and approval regarding the establishment and modification of foreign invested business starting investment company and business starting investment management company (adjusted to commercial administrations at provincial level)
Examination and approval regarding the establishment and modification of foreign invested investment companies (including the supplementary modifications of investment companies approved by the Ministry of Commerce) with a registered capital equals to or below USD 100 million (excluding single increase of registered capital that is more than USD 100 million) (adjusted to commercial administrations at provincial level)

Administrative Measures for Payment Services Provided by Non-financial Institutions

On June 14, 2010, People¡¯s Bank of China promulgated the Administrative Measures for Payment Services Provided by Non-financial Institutions (¡°Measures¡±) which shall come into force on September 1, 2010.
The term ¡°payment services provided by non-financial institutions¡± as mentioned in the Measures refers to some or all of the following monetary capital transfer services provided by non-financial institutions as the intermediaries between payers and payees: 1) payment through the network; 2) issuance and acceptance of prepaid cards; 3) bankcard acquiring; 4) other payment services as specified by the People¡¯s Bank of China.

To provide payment services, a non-financial institution shall obtain a Payment Business Permit. The requirements for applying a Payment Business Permit include:

The minimum registered capital for an applicant who intends to operate the payment business countrywide is RMB 100 million Yuan, while that for an applicant who intends to operate the payment business in a province (autonomous region or municipality directly under the Central Government) is RMB 30 million Yuan. The minimum registered capital shall be paid-in monetary capital.
The largest investor of an applicant (including an investor who actually controls the applicant or an investor who holds at least ten percent of the applicant¡¯s equity) shall meet the following requirements: 1) the investor is a legally formed limited liability company or a joint-stock company; 2) by the date of application, the investor has provided information processing services for financial institutions for at least two consecutive years, or it has provided information processing services for e-commerce activities for at least two consecutive years; 3) by the date of application, the investor has been making profits for at least two consecutive years; 4) the investor has no record of punishment for any illegal activity or crime committed through the payment business or for providing payment services to facilitate illegal activity or crime in the last three years.
The applicant shall have at least five senior managers who are specialists in the payment business.
Neither the applicant nor any of its senior managers has received any punishment for any illegal activity or crime committed through the payment business or for providing payment services to facilitate illegal activity or crime in the last three years.
Additionally, the Measures provides a series of operating rules for payment services provided by non-financial institutions: a payment institution shall, for the deposit paid by a client, issue an invoice for the amount of the payment service charges it collects instead of the amount of the client¡¯s deposit; clients¡¯ deposits accepted by a payment institution shall not be the self-owned property of the payment institution; for a payment institution, the proportion of its paid-in monetary capital against its daily average balance of clients¡¯ deposits shall not be lower than 10%, etc.

Tentative Provisions of Ministry of Commerce on Implementing Divestiture of Assets or Business in Concentration of Undertakings

On July 5, 2010, the Ministry of Commerce promulgated the Tentative Provisions on Implementing Divestiture of Assets or Business in Concentration of Undertakings (¡°Tentative Provisions¡±) which came into force as of the date of promulgation.
The following is some background information on the Tentative Provisions. On November 24, 2009, the Ministry of Commerce promulgated the Measures for the Examination of Concentration of Undertakings (¡°Measures¡±) which came into force on January 1, 2010. According to the Measures, the Ministry of Commerce may decide to attach restrictive conditions to the non-prohibited concentration of undertakings, and such restrictive conditions would reduce the concentration caused by adverse effect on competitions. The restrictive conditions include the divestiture of partial asset or business that involves in the concentration of undertakings. With a view to regulating the implementation of such restrictive conditions and ensuring the smooth completion of asset or business divestiture, the Ministry of Commerce promulgated the Tentative Provisions.

The Tentative Provisions requires that the divestiture obligor, within the time limit prescribed in the Examination Decision, shall find appropriate buyers and conclude sale agreements and other relevant agreements (¡°self-actuated divestiture¡±); if the divestiture obligor fails to complete the self-actuated divestiture on schedule, the divestiture trustee shall find appropriate buyers in light of the time limit and method prescribed in the Examination Decision and conclude sale agreements and other relevant agreements (¡°entrusted divestiture¡±).

During the divestiture process, the divestiture obligor shall appoint a supervisory trustee pursuant to the requirements prescribed in the Examination Decision, and appoint a divestiture trustee in the entrusted divestiture stage. The supervisory trustee and the divestiture trustee are accountable to the Ministry of Commerce and shall report their work thereto. Without the consent of the Ministry of Commerce, the divestiture obligor shall not give instructions to the supervisory trustee or the divestiture trustee, nor shall the divestiture obligor terminate or amend its trust agreement with the supervisory trustee and the divestiture trustee.

The Tentative Provisions also sets the following requirements for the buyers of the divested business: 1) the buyer shall be independent from and have no substantial interest in the parties that are involved in the concentration of undertakings; 2) the buyer shall have the resources, capacity and intention to maintain and develop the divested business; 3) the acquisition of the divested business would not result in eliminating or restricting competition; 4) if the acquisition of the divested business is subject to the approval of any other relevant authority, the buyer shall meet the requirements for obtaining the approval from such authority.

Lastly, the Tentative Provisions indicates that the implementation of other restrictive conditions as prescribed in Article 11 of the Measures may also apply to the relevant regulations of the Tentative Provisions.

Guiding Opinions of the Ministry of Commerce on Promoting the Healthy Development of Online Shopping

On June 24, 2010, the Ministry of Commerce promulgated the Guiding Opinions of the Ministry of Commerce on Promoting the Healthy Development of Online Shopping (¡°Opinions¡±).

The Opinions proposes to increase the volume of online shopping transactions to 5% of the total retail sales of consumer goods by the end of the 12th Five-Year Plan period. In areas with a late start in e-commerce, the volume of online transactions should be increased to 10%.

The Opinions provides the following seven tasks.

Foster online market players, encourage manufacture, distribution and service companies to develop online sales, and commodities and services suitable for online sales.
Broaden the market of online shopping, increase the variety of online commodities and services, and expand online shopping channels in order to satisfy various consumer demands.
Encourage online and offline interactions, and encourage distribution companies to support online sales by store sales and to promote store sales by online sales.
Attach importance to the online shopping market in rural areas.
Improve the service support system, promote the unification of the internet infrastructure service standards, expedite the rationalization of network access standards and charge standards, promote the application of a reliable electronic signature system, advance the cooperation between bank payment services and online shopping, expedite the construction of the interconnection system of online banking, promote the health development of the third party online payment services.
Protect the legitimate consumer rights and interests, implement the business registration system for online commodity trading (service) companies, request individuals who wish to start business on online shopping platforms to register in their real names, and gradually implement the business registration system for individuals who conduct online shopping business when conditions are ripe.
Standardize the online market order, implement the Contract Law, Product Quality Law, the Law on Protection of Consumer Rights and Interests with the relevant departments, and other laws, rules and regulations, and improve the online market supervision system.

Guiding Opinions of the State Administration for Industry and Commerce on Implementing the Tentative Measures for Administration of Online Commodity Trade and Related Service Activities
On June 22, 2010, the State Administration for Industry and Commerce (¡°SAIC¡±) promulgated the Guiding Opinions of the State Administration for Industry and Commerce on Implementing the Tentative Measures for Administration of Online Commodity Trade and Related Service Activities (¡°Opinions¡±).

The following is some background information on the Opinions. On June 1, 2009, the SAIC promulgated the Tentative Measures for Administration of Online Commodity Trade and Related Service Activities (¡°Tentative Measures¡±) which came into force on July 1, 2010. The Tentative Measures is China¡¯s first administrative regulation regarding online commodity trade and related service activities. In order to correctly understand and implement the Tentative Measures, and properly supervise online commodity trade and the related service activities, SAIC promulgated the Opinions right before the implementation of the Tentative Measures.

The Opinions proposes that the supervision of online commodity trade and related service activities shall not be decentralized, but rather be integrated into a national network. Currently, SAIC is conducting an in-depth research of the online supervision information system and the construction of the platform. The detailed guiding opinions on online commodity trade supervision shall be promulgated soon.

The Opinions indicates that online trade platform is the collective trading place for online commodities and services. The supervision of the operators of online trade platforms is the key to maintain the online market order. The Opinions requires the administration for industry and commerce (¡°AIC¡±) at all levels to focus on online trade platforms, especially those having big influence and high trading frequency in each administrative area, as a breakthrough to supervise online commodity trade and related service activities.

The Opinions suggests that the establishment of economic account registration is the basis for the implementation of regulations. The local administrations shall take the implementation of the Tentative Measures as an opportunity to conduct a comprehensive census of the operating subjects of online commodities and services, and create files and data earnestly.

The Opinions also indicates that online market is in its early stage of rapid development with new situations and new problems constantly emerging. Many issues have not met the legislative conditions, and the local conditions vary across the nation. The problems are different from each other, so there is no single solution, and the solution must be localized. Therefore, Article 43 of the Tentative Measures provides that the AIC at the provincial level may formulate guiding opinions on conduct of online commodity trade and relevant service activities in accordance with the Tentative Measures. The Opinions requires the local administrations to carry out research work conscientiously and promulgate the detailed guiding opinions for implementation promptly.

Circular of State Administration of Foreign Exchange on Adjusting the Approval Authority for Foreign Exchange Business with Respect to Some Capital Projects
On June 23, 2010, the State Administration of Foreign Exchange (SAFE) promulgated the Circular of State Administration of Foreign Exchange on Adjusting the Approval Authority for Foreign Exchange Business with Respect to Some Capital Projects (¡°Circular¡±) which came into force on July 1, 2010.

The Circular is another adjustment of the approval authority after SAFE delegated the approval authority for foreign exchange business with respect to capital projects in May, 2009.

Pursuant to the Circular, there are three businesses whose approval authority is delegated from SAFE to its branches. The businesses include: 1) cases in which the overseas loans made by domestic enterprises have exceeded the provided proportion and amount; 2) cases consistent with the administrative principles of capital projects determined by existing regulations but without any explicit definition in the relevant documents and business operation rules; 3) the verification of the indicators of short-term foreign debts balance of domestic Chinese-funded enterprises.

There are four businesses whose approval authority is delegated from SAFE branches to central sub-SAFE branches (Sub-SAFE Branches). The businesses include: 1) verification and approval of the opening, change, cancellation and transfer of funds of the guaranteed special foreign exchange account for bidding of land-use right by foreign investors; 2) verification and approval of the opening, change, cancellation and transfer of funds of the special foreign account for trust and settlement of foreign exchange funds (including purchase price and transaction deposit) in the transaction of property rights made by foreign investors; 3) verification of credit of funds from repatriation and used for payment of foreign exchange involved in the overseas loans made by domestic enterprises; 4) verification of settlement and foreign exchange due to the funds repatriation owing to domestic individuals taking part in employee stock ownership plans or stock option plans of overseas listed companies.

The Circular also provides that the following two businesses may be directly handled by designated banks: 1) the verification of purchase and/or payment of foreign exchange by profits distributed to the foreign party of non-banking financial institutions (excluding insurance companies, the same hereinafter) with foreign investment; 2) the verification for remittance of overseas listing expenses by way of domestic payment by overseas listing domestic companies with foreign shares.

Additionally, the Circular simplifies materials to be submitted for business approval. It provides that enterprises will not be required to submit the "Statement of RMB Account for the Latest Five Business Days" when handling the businesses with respect to purchase of foreign exchange for capital projects.

Supplementary Circular of the State Administration of Taxation on Issues Related to the Measures for Administration of Non-Resident's Enjoyment of Treatment under Taxation Agreement (Trial Implementation)

On June 21, 2010, the State Administration of Taxation (¡°SAT¡±) promulgated the Supplementary Circular on Issues Related to the Measures for Administration of Non-Resident's Enjoyment of Treatment under Taxation Agreement (Trial Implementation) (¡°Supplementary Circular¡±).

The following is the background information of the Circular. On August 24, 2009, the SAT promulgated the Measures for Administration of Non-Resident's Enjoyment of Treatment under Taxation Agreement (Trial Implementation) (¡°Measures¡±) which came into force on October 1, 2009. The SAT promulgated the Supplementary Circular on the implementation of the Measures.

The Circular specifies that the identity certification of tax residents submitted by taxpayers pursuant to the Measures includes the identity certification of tax residents issued by the competent authorities of the other party of the tax convention, based on 1) the relevant contents in Column 27 of Appendices 1 or Column 25 of Appendices 2 of Guo Shui Fa [2009] No. 124, or 2) the independently issued special certification.

As to the materials that have been submitted to the competent taxation authorities and are exempted from re-submission according to the Measures, the Supplementary Circular specifically confines such materials to the ones that have been submitted to the same competent taxation authorities. Where the non-residents need to file approval application or report for record with different competent taxation authorities, they shall submit relevant materials to the said different competent taxation authorities.

The Supplementary Circular further clarifies that if Article 2 of the Circular of the State Administration of Taxation on Relevant Issues Concerning Interpretation and Implementation of Relevant Clauses of the Arrangements between the Mainland and Hong Kong Special Administrative Region on Avoidance of Double Taxation on Income (Guo Shui Han [1998] No. 381) and Item 3 of Article 3 of the Circular of the State Administration of Taxation Concerning Interpretation and Implementation Issues Relevant to the Arrangement between the Mainland and Hong Kong Special Administrative Region to Avoid Double Taxation and Prevent Tax Evasion (Guo Shui Han [2007] No. 403) contradict with the Measures, the former two provisions shall prevail.

Additionally, the Supplementary Circular interprets and amends several matters related to the implementation of the Measures such as processing time and document filing.

Circular of the Supreme People's Court on Issues Concerning Application of the Tort Law of the People's Republic of China

On June 30, 2010, the Supreme People's Court promulgated the Circular on Issues Concerning Application of the Tort Law of the People's Republic of China (¡°Circular¡±).

The following is the background information of the Circular. On December 26, 2009, the Standing Committee of the National People's Congress promulgated the Tort Law of the People's Republic of China (¡°Tort Law¡±) which came into force on July 1, 2010. In order to correctly apply the Tort Law, the Supreme People's Court promulgated the Circular.

The Circular includes the following four provisions.

Civil disputes arising from tortious acts that occur after the implementation of the Tort Law shall be resolved pursuant to the Tort Law. Civil disputes arising from the tortious acts that occur before the implementation of the Tort Law shall be resolved pursuant to the laws and regulations of the time when the tortious acts occurred.
Civil disputes arising from tortious acts occurring before the implementation of the Tort Law- but the damaging consequences appeared after the implementation shall be resolved pursuant to the Tort Law.
If, in a civil trial applying the Tort Law, the people¡¯s court decides, upon the application by the party concerned or by virtue of the authority of the court itself, to conduct a medical malpractice authentication, the authentication shall be conducted pursuant to the Decisions of the Standing Committee of the National People's Congress on Administration of Judicial Authentication, the Administrative Regulations of Judicial Authentication Made Upon Entrustment of the People's Courts, and other regulations of the relevant state departments.
If, in a civil trial applying the Tort Law, the victim has a person in need of maintenance and upbringing, the living expenses of the person in need of maintenance and upbringing shall be included into the disability compensation or the decease compensation pursuant to Article 28 of the Interpretation of the Supreme People's Court Concerning Some Issues on the Application of Law for the Trial of Cases on Compensation for Personal Injury.

Notice of the Supreme People¡¯s Court, the Supreme People¡¯s Procuratorate, the Ministry of Public Security, the Ministry of State Security and the Ministry of Justice on Issuing the Provisions on Several Issues Concerning the Examination and Judgment of Evidence in Death Sentence Cases and the Provisions on Several Issues Concerning the Exclusion of Illegal Evidence in Criminal Cases

The ¡°Provisions on Several Issues Concerning the Examination and Judgment of Evidence in Death Sentence Cases¡± and the ¡°Provisions on Several Issues Concerning the Exclusion of Illegal Evidence in Criminal Cases¡± were issued by the Supreme People¡¯s Court, the Supreme People¡¯s Procuratorate, the Ministry of Public Security, the Ministry of State Security and the Ministry of Justice on June 13, 2010. These two Provisions came into force on July 1, 2010.

In accordance with the Provisions on Several Issues Concerning the Examination and Judgment of Evidence in Death Sentence Cases, in the trial of a death sentence case, the defendant¡¯s criminal facts must be ascertained based on conclusive and sufficient evidence. Conclusive and sufficient evidence means that: 1) all facts for conviction and sentencing are backed by evidence; 2) all evidence used to determine the case has been verified through legal procedures; 3) there is no contradiction between the different pieces of evidence or between evidence and case facts, or any contradiction has been reasonably ruled out; 4) in a joint offense, the defendant¡¯s role has been ascertained; and 5) the process of using evidence to verify case facts conforms to the logic and experiential rules, and the conclusion reached from evidence is exclusive.

In addition, in a death sentence case, the evidence used to prove the following facts must be conclusive and sufficient: 1) the occurrence of the accused criminal facts; 2) the fact that the defendant has committed the criminal act, and the time, location, means, consequences and other circumstances of the criminal act; 3) the identity information that affects the conviction of the defendant; 4) the fact that the defendant has the criminal capacity; 5) the fault of the defendant; 6) whether it is a joint offense and, if it is, the defendant¡¯s role in the joint offense; and 7) the facts for which the defendant deserves a heavier punishment.      

The Provisions on Several Issues Concerning the Examination and Judgment of Evidence in Death Sentence Cases have also stipulated some detailed rules and guidelines for classified examination and verification of evidence, as well as comprehensive examination and application of evidence, and pursuant to these Provisions, other criminal cases shall be analogically governed by these Provisions.

In accordance with the Provisions on Several Issues Concerning the Exclusion of Illegal Evidence in Criminal Cases, the confessions of a criminal suspect or defendant extorted by torture or other illegal means as well as a witness¡¯ testimony and victims¡¯ statements extorted by violence, threat or other illegal means are illegal verbal evidence. The verbal evidence which has been confirmed as illegal shall be excluded in the handling of cases, and shall not be used as a basis for determining a case.

Regarding the proof of the legality of evidence acquirement, the Provisions regulate that:

If the prosecuting personnel fail to provide evidence to prove that a defendant¡¯s statement made before trial is legally acquired or the evidence they provided is not conclusive or sufficient, the statement shall not be used as a basis for determining the case.
Where a defendant or the defender thereof argues that the defendant¡¯s statement made before the trial is acquired by illegal means while the people¡¯s court of the first instance failed to make an investigation thereon, instead it used the statement as a basis for decision, the people¡¯s court of the second instance shall check whether the said statement is acquired by legal means. If the prosecuting personnel fail to provide evidence to prove that the statement is legally acquired or if the evidence they provide is not conclusive or sufficient, the statement shall not be used as a basis for decision.
If, during court proceedings, a public prosecutor, the defendant or the defender thereof argues that the written testimony of a witness who is not present in court or the written statement of a victim who is not present in court is acquired by illegal means, the evidence producer shall prove that the evidence was legally collected.
It is also regulated in the Provisions that where any physical or documentary evidence is obviously collected in violation of law, which may affect the impartiality of the court trial, correction or justification shall be made; otherwise the evidence shall not be used as a basis for decision.

Legal Practices

How to Sign the Contract for Labour Service and Matters that Attention Shall Be Paid to

The contract for labour service and the labour contract are easily confused by people. The contractual objective for both contracts is to use the labour of people. According to Article 16 of the Labour Law, the labour contract shall be ¡°the agreements reached between laborers and the employer to establish labour relationships and specify the rights, interests and obligations of each party¡±, while the contract for labour services shall be a kind of contract that uses the services of people as the objective of the contract. In a broader sense, the contract for labour services includes contracts such as the contract of hired work, the contract for construction project, the contract of carriage, the technical service contract, the agency contract, and the contract of brokerage, while in the narrow sense, the contract for labour services refers to employment contract.

Before signing a contract for labour services, the following principles shall be confirmed:

The parties to the contract shall be equal, while the relations in a labour contract has certain dependency;
In the course of providing services, the parties to the contract do not have such relations as the managing party and the managed (i.e. there is no specific position and post, and no higher or lower level);
The rights and obligations of the parties are specified by the parties by agreement, which is completely equal and not free of charge (i.e. the parties are not bound by corporate rules, but are bound by the contract for labour services);
The party that accepts the services shall make payment according to the results of the service and the provisions of the contract, and such payment is not fixed salary.

The most common contract for labour use that completely satisfies the above principles is the ¡°labour contracting agreement¡± inside a company, i.e. the company contracts a single business to a certain person, and only pays for the services provided by the person, no matter how the person operates the business, and the person shall not be bound by the rules of the company.

In addition, according to the Notice of Shanghai Municipal Labour and Social Security Bureau regarding the Issues about Special Labour Relationship (2003), the following relations between the following individuals and the enterprises shall be deemed as special labour relationship:
1. Persons that reserve the social insurances by agreement;
2. Persons that have internally retired from the enterprise;
3. Persons for whom the job is retained but his/her salary is suspended;
4. Persons dispatched by professional labour companies;
5. The retired persons;
6. The working staff from regions outside Shanghai that have not got approvals for working in Shanghai;
7. Other persons that are subject to the above provisions.

Special labour relationship is an employment relationship beyond the labour relationship and the civil labour relationship (which is subject to the civil law). According to the practices in Shanghai, the special persons mentioned above may enter into ¡°contract for labour services¡± with the enterprises. However, such ¡°contract for labour services¡± have certain differences from the ¡°contract for civil labour services¡±, and enterprises that employ such special laborers shall also comply with the laws and regulations on working time, labour protection and the minimum salary. Certainly, other provisions such as the observation of company rules, the provisions concerning prior dismissal may be added to the contract for labour services by free discussion between the enterprise and the special laborers.

In addition to the above issues, attention shall also be paid to the following items by the enterprises when entering into the contract for labour services:

The contract for labour services shall avoid the use of provisions and performance pattern of the labour contract;
The remuneration of the laborer shall be different from the salary of the laborer, i.e., the remuneration shall not constitute such items as overtime pay, late penalty, the days for compulsory attendance, time for holidays and leaves, fixed overtime work, free overtime work, bonus, retro payment of social insurance, company penalty and the like that are in relation to the management or rules of the company;
If the persons are employed in the name of providing labour services, but the company manages such persons as employers, in the event of dispute, the labour arbitration institutions or the court normally inclines to handle such disputes as labour disputes.
(Contact of the author: kevincheng@hllawyers.com)

The Registered Trademark ¡°ÓÅÅÌ¡± Was Cancelled and Netac Company Has Re-instituted the Administrative Litigation

[Summary]
Shenzhen Netac Technology Co., Ltd. (hereinafter ¡°Netac Company¡±) filed an application on August 23, 1999 with the Trademark Office of the State Administration for Industry and Commerce to register the trademark ¡°ÓÅÅÌ¡± (which means ¡°good disk¡± in English) on goods such as computer memory and the likes in the 9th category of NICE Classification. On January 21, 2001, the application was approved and the mark ¡°ÓÅÅÌ¡± had become a registered trademark of Netac Company.

On October 23, 2002, Beijing Huaqi Information Digital Science & Technology Co., Ltd. (hereinafter ¡°Huaqi Company¡±) filed with application to the Trademark Review and Adjudication Board of the State Administration for Industry and Commerce to cancel the registration of the trademark ¡°ÓÅÅÌ¡± on such ground that the word ¡°ÓÅÅÌ¡± had become the general name of computer mobile memory products, therefore, the registered trademark shall lack the feature of significance as a trademark. Netac Company defended that the word ¡°ÓÅÅÌ¡± was the specific name for its patented products other than the general name of such kind of products, and therefore, it shall have the feature of significance required by Trademark Law.

[Decision and Judgment]
On October 13, 2004, the Trademark Review and Adjudication Board made a decision concerning the case (hereinafter ¡°Decision 2004¡±) stating that the following factors shall be taken into consideration when deciding whether the disputed trademark shall be recognized as the general name of specific products or not: (1) the literal meaning of the word contained in the disputed trademark; (2) the recognition of and the use of such word by the holder of the disputed trademark; (3) the recognition of and usage of such word by the business operators in the same industry and the consumers.

Based on the meaning of the Chinese character ¡°ÓÅÅÌ¡±contained in the disputed trademark ¡°ÓÅÅÌ¡±, it has directly described the quality, function, purpose and other features of the goods like computer memory in 9th category specifically used by such trademark, i.e. it means computer memories with high and fine quality. The function of a general name of one product is to distinguish one product from another by briefly describing the quality, function, purpose and other characters of the product, and therefore it can be easily called and identified by the public. In consequence, the general name of one good shall be constituted a brief and simple word that is able to describe the features of such good. As a result, the disputed trademark in this case shall, seeing from the constitution of the word and its meanings, lack of the significance as a trademark.

Based on the usage of the word ¡°ÓÅÅÌ¡± by Netac Company, the word ¡°ÓÅÅÌ¡± is used by Netac Company as the name of computer mobile memory products. In the business license of Netac Company, ¡°ÓÅÅÌ¡± is listed as a product produced and sold by Netac Company. On the packages of the product and the promotional materials of Netac Company, there is no commodity name used after the word ¡°ÀÊ¿ÆÓÅÅÌ¡± or ¡°ÓÅÅÌ¡±, which means that the word ¡°ÓÅÅÌ¡± is actually used as the name of a product. A trademark shall have functions different from that of the name of a product, and shall be regulated by different laws and regulations. According to the reading customs of the business operators and the customers, the trademark and name of the product are usually used in combination to have different functions. Where the trademark is also used as the name of a product, the significance of a trademark will unavoidably be trivialized. If the word has directly described the features of the product, and has less significance of a trademark, such word will be more easily used by the public as the general name of the goods. Therefore, the usage of the word ¡°ÓÅÅÌ¡± actually adopted by Netac Company has, objectively speaking, reduced or eliminated the significance of the word ¡°ÓÅÅÌ¡± used as a trademark.

According to the recognition of and usage of such word by the business operators in the same industry and the consumers, the Trademark Review and Adjudication Board held that the word ¡°ÓÅÅÌ¡± had been used as a name to search for computer mobile memory, and many business operators in the same industry, the employees in the computer industry, and the customers had used the word ¡°ÓÅÅÌ¡± as a general name of computer mobile memory products. Furthermore, the Trademark Review and Adjudication Board pointed out that a product may have several general names at the same time, for example, the computer mobile memory, as a new product, was called by the public as ¡°flash memory disk¡±, ¡°flash disk¡±, ¡°USB flash memory disk¡±, ¡°U disk¡± and other names other than ¡°ÓÅÅÌ¡±, however, we cannot deny the fact that the word ¡°ÓÅÅÌ¡± was used as one of the general names of the product.

Finally, the Trademark Review and Adjudication Board determined that the word ¡°ÓÅÅÌ¡± had actually been the general name on the product --- computer memory --- specifically used by it, and therefore shall not be used as a registered trademark. Still, such a general name used on computer or computer related products shall not have the significance as a trademark. As a result, the registration of the trademark ¡°ÓÅÅÌ¡± was cancelled.

On November 16, 2004, Netac Company instituted an administrative litigation to Beijing No.1 Intermediate People¡¯s Court against the Decision 2004. In February 2006, the court made a verdict to revoke the Decision 2004 on the ground of ¡°violating legal process¡±, and request the Trademark Review and Adjudication Board to re-try the case.

On March 15, 2010, the Trademark Review and Adjudication Board made a new decision after re-trial to affirm the Decision 2004, and held that the word ¡°ÓÅÅÌ¡± was the general name of a product and shall be cancelled.

[Brief Comments]
Trademark is an important part of the intangible property of an enterprise. The establishment and accumulation of the popularity and reputation of the trademark will bring huge commercial benefits to the trademark holder. However, the trademark holder shall use the trademark in a proper manner and pay great attention to protect the significance of the trademark, so as to avoid the dilution of the trademark. Take this case for example, when Netac Company was registering the word ¡°ÓÅÅÌ¡± as trademark, there was no conception or name in respect of ¡°ÓÅÅÌ¡± in the whole computer industry. However, as Netac Company intentionally trivialized the differences between the trademark ¡°ÓÅÅÌ¡± and the name of the product for a long time, and excessively used ¡°ÓÅÅÌ¡± as the name of the product, as a result, the business operators in the same industry, the employees in the computer industry, and the customers had gradually used the word ¡°ÓÅÅÌ¡± as a general name of computer mobile memory products. In consequence, the trademark was popularly used as the general name and therefore the registration of such trademark was cancelled accordingly.

As Netac Company had re-instituted an administrative litigation to the Beijing No.1 Intermediate People¡¯s Court on April 26, 2010, the recent decision made by the Trademark Review and Adjudication Board may not be the final decision of this case. But the enterprises shall pay more attention to the risk of dilution of a trademark reflected by this case, and take positive actions to avoid re-occurrence of such issues.

(Contact of author: baileyxu@hllawyers.com, arielleli@hllawyers.com£©

Key Points to Reviewing Non-competition Economic Compensation Clauses

Economic compensation is a very important part of the non-competition clause. Based on our practical experience, we suggest that when reviewing such clauses on economic compensation, special attention should be paid to two issues:

1. Compensation Payment Method
We have noticed that quite a few enterprises have stated in their non-competition clause: ¡°the monthly salary paid by the Company to the employee includes economic compensation for non-competition.¡± We believe this policy is unreasonable and that it is not in compliance with requirements of the Labour Contract Law. Under this policy, the economic compensation received by the employee is actually mixed with employee¡¯s monthly salary. But according to the relevant regulations, the sum of the economic compensation should be based upon the employee¡¯s monthly salary, which makes the final sum difficult to be calculated. In addition, due to the fact employees are often at a disadvantage when negotiating for financial clauses of their labour contract, enterprises can, through such a method, not only reduce but even refuse proper economic compensation, harming the employee¡¯s rights and interests. Thus, it is difficult for this type of policy, in reality, to get the support of arbitrators and courts.

We suggest that the exact figure of economic compensation be clearly stated in the non-competition clause, and in accordance with the second paragraph of Article 23 of the Labour Contract Law, ¡°the employer shall compensate the employee on a monthly basis during the non-competition period.¡±

2. Standard of Economic Compensation
The standard of economic compensation is an issue many enterprises are concerned with, but the applicable articles of the Labour Contract Law do not give a unified, national standard. Therefore, some provinces and cities have implemented local policies regarding the standards of economic compensation. We suggest that, when deciding the figures of the economic compensation, enterprises shall take into consideration these local standards so as to ensure the support of the local arbitrators and courts if disputes do occur.

For instance, pursuant to Article 13 of the Opinions on Some Questions relating to the Implementation of the Labour Contract Law issued by the Shanghai High People¡¯s Court (HuGaoFa [2009] No.73), if a labour contract has only regulated that the employee shall perform non-competition obligations, but has not mentioned whether an economic compensation shall be paid, or even if it is specified that the employer shall pay economic compensations, the standard of the economic compensation is not given, then it shall be affirmed that the non-competition clause shall be binding upon the two parties based upon the fact that the two parties have reached the consensus on non-competition. Both parties may continue to negotiate on the amount of the compensation; if such negotiation fails, the compensation shall be paid at 20-50% of the employee¡¯s previous normal salaries. And if no agreement on the non-competition period can be reached, the non-competition period shall not exceed two years.¡±

Although the aforementioned clause has not given a fixed standard and does leave room for negotiations, enterprises should really consider the suggested standard of ¡°20-50% of a laborer¡¯s previous salary.¡±

(Contact of the author: stevenzhou@hllawyers.com)

Analysis on New Rules of Domestic Natural Persons Establishing Sino-Foreign Equity Joint Ventures and Sino-Foreign Cooperative Joint Ventures

Pursuant to Sino-Foreign Equity Joint Venture Law and Sino-Foreign Cooperative Joint Venture Law, only Chinese companies, enterprises or other commercial organizations can be the Chinese investors to jointly establish Sino-foreign equity joint ventures or Sino-foreign cooperative joint ventures with foreign companies, enterprises, other commercial organizations or individuals. These exclude domestic natural persons from being the Chinese parties to invest in Sino-foreign equity joint ventures or Sino-foreign cooperative joint ventures.

However, China is pacing up in attracting foreign investments. Chinese individual incomes and scientific R&D are progressing constantly, especially in the high-tech industry where many domestic natural persons possess patents in environmental protection, computer and network technology and other areas. Nevertheless, it is not easy for these patent holders to find suitable domestic investors to establish companies, and laws and regulations prohibit natural persons from seeking foreign investors to establish companies. Therefore, the patents that are held by domestic natural persons are difficult to find funding for production. On the other hand, if foreign investors establish companies with domestic natural persons through the corporate entities registered in China, the investments are also confined by the Interim Provisions on Investment in China by Foreign¨Cinvested Enterprises.

In the backdrop of China¡¯s further reform and opening-up and the constant improvement of the rule of law, Shanghai Pudong New Area Government and Shanghai Administration of Industry and Commerce jointly promulgated the Trial Measures for the Investment in and Establishment of Sino-Foreign Equity Joint Ventures and Sino-Foreign Cooperative Joint Ventures by Domestic Natural Persons in Pudong New Area (the ¡°Trial Measures¡±). Pudong New Area would be the pilot for domestic natural persons establishing Sino-foreign equity joint ventures and Sino-foreign cooperative joint ventures.

Firstly, the Trial Measures provides that ¡°domestic natural persons¡± refer to domestic residents who hold resident identity cards of the People's Republic of China. The Sino-foreign equity joint ventures or Sino-foreign cooperative joint ventures invested and established by domestic natural persons shall have full capacity for civil conduct, and shall comply with other provisions of the State laws and regulations on natural persons becoming shareholders. Besides these, there is no special qualification for domestic natural persons in establishing Sino-foreign equity joint ventures or Sino-foreign cooperative joint ventures.

As to the investment/cooperation methods, a domestic natural person can make investment or provide cooperation in the form of currency, kind, intellectual property rights, or other non-currency property that can be evaluated in currency and can be transferred according to laws.

Secondly, the investment in a Sino-foreign equity joint venture or Sino-foreign cooperative joint venture invested and established by a domestic natural person shall be restricted to the encouraged or permitted projects prescribed in the Industry Catalog for Guiding Foreign Investment.

Thirdly, the Trial Measures not only applies to the establishment of Sino-foreign equity joint ventures or Sino-foreign cooperative joint ventures. Where the alteration of a wholly foreign-funded enterprise results in a domestic natural person becoming a shareholder of a Sino-foreign equity joint venture or Sino-foreign cooperative joint venture, the relevant matters shall also be handled in accordance with the Trial Measures.

Please note that the Trial Measures is a local regulation and is from a relatively low source, and its geographical scope of application is limited to Shanghai Pudong New Area. Additionally, the Trial Measures is only effective for two years (become effective on May 1, 2010).

Currently, there have been some Sino-foreign equity joint ventures that are established pursuant to the Trial Measures, and have been granted business licenses.