Haworth & Lexon Law Newsletter
No.5 2013(Total:No.133) July 26, 2013
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.
Guidelines:
News Update
The periodical Capital (Tou Zi Yu He Zuo) recently published the thesis of Chambers Yang, Legal Risk of VC/PE’s Exit by way of Back-Door Listing
Latest Laws and Regulations:
Measures for the Pilot Program of Investment in the Establishment of Fund Management Companies by Insurance Institutions
Decision on Revising the “Administrative Measures for Client Assets Management Business of Securities Companies”
Decision on Revising the Detailed Implementing Rules for the Collective Assets Management Business of Securities Companies
Decision on Revising the “Regulations of the People’s Republic of China on the Administration of Foreign-Funded Insurance Companies”
Measures for Depository of Customer Excess Reserves by Payment Institutions
Implementing Measures for Labor Dispatching Administrative Licensing
General Administration of Customs Promulgates the Measures for the Supervision and Administration of the Customs of the People’s Republic of China for Hengqin New Area (Tentative)
Interpretations of the Supreme People’s Court on Several Issues Concerning the Application of the “Insurance Law of the People’s Republic of China” (II)
The Supreme People’s Court Promulgates Reply to Whether the Maritime Court can Apply Petty Lawsuit Procedure
Implementing Opinions on Delegating the Authority of Examination and Approval to Pilot Branches of Shanghai Zhangjiang High & New Technology Industrial Development Park
Beijing Municipal Higher People’s Court Guidelines (“Q&A”) to Several Issues Related to Adjudicating E-Commerce Cases Involving IP Infringement
Legal Practices:
“Reverse Takeover” in HK Back-door Listing
Legal Relief for Designer Whose Name Has Been Registered as Trademark
News Update
The periodical Capital (Tou Zi Yu He Zuo) recently published the thesis of Chambers Yang, Legal Risk of VC/PE’s Exit by way of Back-Door Listing
Recently, at the invitation of Capital, Chambers Yang presented his analysis on the risk of back-door listing from the perspective of law, in connection with the recent heated discussions spurred by HEAVEN-SENT’s back-door listing. Chambers Yang further drafted a thesis Legal Risk of VC/PE’s Exit by way of Back-Door Listing, in which he regards back-door listing as another approach for PE/VC’s exit in addition to IPO, and also reminds the relatively high legal and financial risks of back-door listing as well as the possible failure of back-door listing to get approved and to effectuate integration, risks of connected transaction, insider transaction, share price manipulation or malicious speculation, etc. The May 2013 Issue of Capital published this thesis in the column of Thematic Research.
The Capital is a core periodical specialized in reports of Asia-Pacific equity investment, known as the most professional and influential periodical committed to reports of Asia-Pacific private equity investment and financing. This monthly publication has been popular for 20 years, enjoying a unique prestige and reputation in terms of its professionalism and leading role in news update. Moreover, it is honored as a guiding publication for venture capital financing, with a widespread recognition and influence in reports of investment and financing in the Mainland of China and other Asia-Pacific regions.
Latest Laws and Regulations
Measures for the Pilot Program of Investment in the Establishment of Fund Management Companies by Insurance Institutions
On June 7, 2013, China Securities Regulatory Commission and China Banking Regulatory Commission jointly promulgated the Measures for the Pilot Program of Investment in the Establishment of Fund Management Companies by Insurance Institutions (hereinafter referred to as the Pilot Measures), specifying the pilot program of investment in the establishment of fund management companies by insurance institutions.
For the purpose of the Pilot Measures, insurance institutions shall refer to the insurance companies, insurance group (holding) companies, insurance assets management companies and other insurance institutions established within the territory of the People’s Republic of China upon approval by the China Insurance Regulatory Commission (“CIRC”).
According to the Pilot Measures, to apply for investing in the establishment of a fund management company, an insurance institution shall comply with the provisions on equity investment of the CIRC, and submit application materials to the CIRC. The CIRC shall, from the perspective of preventing investment risks of insurance funds, examine the qualification of the insurance institution to invest in fund management companies, and issue regulatory opinions on the investment in fund management companies by the insurance institution pursuant to the law.
As to the operation of a fund management company invested by an insurance institution, the Pilot Measures require that an insurance institution and the fund management companies established with its investment shall have in place good corporate governance, and set up a risk isolation system for the insurance institution and the fund management companies established with its investment in strict accordance with the principle of “separation of business among different legal persons”. Such a risk isolation system shall at least cover the followings: (1) That the insurance institution shall establish separate accounts for independent accounting according to the nature or sources of the insurance funds; (2) That the business operations and business premises of the insurance institution and the fund management companies established with its investment shall be effectively separated from each other and their respective managerial personnel shall not hold part-time positions in each other; (3) That the financial management of the insurance institution and the fund management companies established with its investment shall be strictly separated from each other to ensure that account books are separate and accounting is independent; and (4) That the investment operations and information transmission of the insurance institution and the fund management companies established with its investment shall be strictly separated from each other, and that the insurance institution shall not require the said fund management companies to provide non-public information and data on investment, research, etc., so as to prevent improper affiliated transactions, and ban any form of benefit transfer.
Meanwhile, the Pilot Measures require that an insurance institution shall not engage in transactions with the fund management companies established with its investment on the national interbank market, exchanges and other markets based on conditions more favorable than those for similar transactions conducted with unaffiliated third parties, nor provide each other with client information and materials in violation of State provisions, and shall not prejudice the legitimate rights and interests of clients in business dealings.
Last but not least, to ensure regulation of insurance institutions and fund management companies established with their investment, the Pilot Measures specify that CIRC and CSRC shall establish a regulatory information sharing system and a mutual exchange handling mechanism to strengthen the coordinated regulation over the establishment of fund management companies by insurance institutions.
Decision on Revising the “Administrative Measures for Client Assets Management Business of Securities Companies”
On June 26, 2013, China Securities Regulatory Commission promulgated the Decision on Revising the “Administrative Measures for Client Assets Management Business of Securities Companies” (Zheng Jian Hui Order No.93), specifying the revisions of the Administrative Measures for Client Assets Management Business of Securities Companies.
(1) Scope of applicable laws has been expanded
On the basis of the original applicable laws, the Law of the People’s Republic of China on Securities Investment Funds has been added. It is specified in the Administrative Measures for Client Assets Management Business of Securities Companies as amended (hereinafter referred to as the New Administrative Measures) that “these Measures are hereby formulated in accordance with the Securities Law of the People’s Republic of China, the Law of the People’s Republic of China on Securities Investment Funds and the Regulations on the Supervision and Administration of Securities Companies as well as other relevant laws and administrative regulations”.
(2) The assets custodians have been specified
Article 13 of the New Administrative Measures stipulates that: “place the assets of clients under the custody of assets custodians with fund custody business qualifications, and provide clients with assets management services through special accounts” and also delete the provision of Article 14 of the original Administrative Measures that differentiates the collective assets management scheme as “restrictive collective assets management scheme and non-restrictive collective assets management scheme”.
(3) Essential contents of assets management contracts
The New Administrative Measures have modified the itemized provisions of the original Administrative Measures on assets management contracts, requiring that “the assets management contract shall the essential contents prescribed by Article 93 and 94 of the Law of the People’s Republic of China on Securities Investment Funds”.
(4) Eligibility and scope of qualified investors have been specified
Article 26 of the New Administrative Measures stipulates that a collective assets management scheme shall only be promoted to qualified investors not exceeding 200 in total. A qualified investor shall refer to an entity or individual that is capable of appropriately identifying risks and bearing the risks of the collective assets management scheme it invests in, and that satisfies any of the following conditions: (1) The total personal or household financial assets shall be no less than RMB 1 million, applicable if the qualified investor is a natural person; or (2) The net assets shall not be less than RMB 10 million, applicable if the qualified investor is a company, enterprise or institution.
Any and all types of collective investment products duly established and regulated shall be deemed as a single qualified investor.
Decision on Revising the Detailed Implementing Rules for the Collective Assets Management Business of Securities Companies
On June 26 2013, China Securities Regulatory Commission promulgated the Decision on Revising the Detailed Implementing Rules for the Collective Assets Management Business of Securities Companies (hereinafter referred to as the Decision), specifying the revisions of the Detailed Implementing Rules for the Collective Assets Management Business of Securities Companies.
(1) Specify the “Conditions for Collective Schemes”
The Detailed Implementing Rules for the Collective Assets Management Business of Securities Companies as amended (hereinafter referred to as the New Detailed Implementing Rules) provide in Article 5 that a securities company that engages in collective assets management business shall provide services for qualified investors, establish collective assets management schemes (hereinafter referred to as the “Collective Schemes” or “Schemes”), and serve as the manager of the Schemes.
The Collective Scheme shall satisfy the following conditions:
(1) The amount of funds raised shall be no more than RMB 5 billion;
(2) The amount contributed by a single client shall be at least RMB 1 million; and
(3) The number of total clients shall be no more than 200.
(2) Emphasize the “Independence of Collective Assets”
Article 6 of the New Detailed Implementing Rules provides that assets under the Collective Schemes of a securities company shall be independent of the proprietary assets of the securities company, the relevant assets custodians and fund unit registration agencies. Securities companies, assets custodians and fund unit registration agencies shall not include the assets under Collective Schemes as their proprietary assets.
In the event of bankruptcy or liquidation of a securities company, assets custodian or fund unit registration agency, assets under Collective Schemes shall not be included as its bankruptcy or liquidation assets.
Meanwhile, Article 7 provides that securities companies, promotion institutions and fund unit registration agencies shall not include the funds obtained from sales and settlement of Collective Schemes as their proprietary assets. In the event of bankruptcy or liquidation of a securities company, promotion institution or fund unit registration agency, funds obtained from sales and settlement of Collective Schemes shall not be included as its bankruptcy or liquidation assets. No entity or individual may misappropriate such funds in any form.
(3) Promote the “Collective Scheme”
According to the new Detailed Implementing Rules, it is prohibited to raise funds from entities and individuals other than qualified investors. It is prohibited to promote a Collective Scheme to non-specific parties via newspapers, periodicals, radio, television, the Internet and other public media, or by holding lectures, seminars, analysis meetings, etc. It is also prohibited to promote a Collective Scheme by concluding supplementary agreements on principal protection, or via other improper means such as false advertising, inflating expected profits and commercial bribery.
Decision of the State Council on Revising the “Regulations of the People’s Republic of China on the Administration of Foreign-Funded Insurance Companies”
On May 30, 2013, the State Council promulgated the Decision on Revising the “Regulations of the People’s Republic of China on the Administration of Foreign-Funded Insurance Companies”, revising the Regulations of the People’s Republic of China on the Administration of Foreign-Funded Insurance Companies as follows:
Paragraph 1 of Article 7 has been amended as: “The minimum amount of the registered capital of an EJV Insurance Company or a WOFE Insurance Company is RMB 200 million or the equivalent in a freely convertible currency, and such minimum amount must be the paid-up capital”.
Paragraph 2 of Article 7 has been amended as: “A Branch Company of a Foreign Insurance Company shall be allocated for free by its headquarters with operating funds of not less than RMB 200 million or the equivalent in a freely convertible currency”.
Measures for Depository of Customer Excess Reserves by Payment Institutions
On June 7, 2013, the People’s Bank of China promulgated the Measures for Depository of Customer Excess Reserves by Payment Institutions (PBOC Announcement [2013] No.6, hereinafter referred to as the Measures). The Measures specified the relevant issues regarding the depository of customer excess reserves by payment institutions.
According to the Measures, customer excess reserves shall refer to the monetary amount prepaid by a customer for pending payment that has been actually received by a payment institution for processing the payment services entrusted by the customer. Meanwhile, the Measures require Customer excess reserves received by a payment institution to be fully deposited in the special deposit accounts for excess reserves opened by the payment institution with excess reserves banks.
According to the Measures, customer excess reserves may only be used for processing payment services entrusted by customers and for handling other circumstances prescribed herein. No entity and individual may misappropriate, encroach on or borrow customer excess reserves, or provide guarantee for others with customer excess reserves without authorization.
Meanwhile, the Measures require payment institutions to accrue risk reserves on with regard to customer excess reserves. Pursuant to Article 29 of the Measures, a payment institution shall accrue risk reserves on a quarterly basis, and deposit the same in the special deposit account for risk reserves opened with the excess reserves depository bank or an authorized branch thereof. The risk reserves shall be used to make up for the specific losses of customer excess reserves and for other purposes prescribed by the PBOC. The payment institution shall accrue risk reserves at a certain percentage of the total interest accrued on all its excess reserves bank accounts. Where the payment institution has not more than four cooperative banks with which it has opened excess reserves collection and payment accounts, the risk reserves shall be accrued at 10%. Where the payment institution later increases the number of cooperative banks with which it opens excess reserves collection and payment accounts, the percentage for accruing the risk reserves shall be dynamically raised. The measures for accrual and management of risk reserves shall be formulated separately by the PBOC.
Recently, Alipay has been updated to Yu Ebao partially because the Measures stipulated that payment institutions cannot use customer excess reserves and should accrue 10% risk reserves. This stipulation has undoubtedly imposed some pressure on the working capital of payment institutions.
Implementing Measures for Labor Dispatching Administrative Licensing
On June 20, 2013, the Ministry of Human Resources and Social Security promulgated the Implementing Measures for Labor Dispatching Administrative Licensing (hereinafter referred to as the Implementing Measures). On the basis of the Labor Contract Law, the Implementing Measures further provided for the condition, manner, etc. of labor dispatching practices.
According to Article 6 of the Implementing Measures, to engage in labor dispatching business, an applicant shall apply for administrative licensing in accordance with the law to the administrative department of human resources and social security at its domicile that has jurisdiction over licensing applications (hereinafter referred to as the “Licensing Authority”). No entity and individual may engage in labor dispatching business without being licensed.
Also, Article 7 provided that an applicant that applies for engaging in labor dispatching business shall satisfy the following conditions:
(1) The applicant shall have a registered capital of not less than RMB 2 million;
(2) The applicant shall have permanent business premises and facilities suitable for its business;
(3) The applicant shall have in place labor dispatching management systems in compliance with laws and administrative regulations; and
(4) The applicant shall satisfy other conditions as prescribed by laws and administrative regulations.
According to the Implementing Measures, where the application submitted by an applicant satisfies statutory conditions, the relevant Licensing Authority shall make a written decision to grant administrative licensing in accordance with the law, and inform the applicant to collect the Labor Dispatching Business Permit within five working days from the date of decision. The Labor Dispatching Business Permit shall be valid for three years. A labor dispatching entity shall properly keep the Labor Dispatching Business Permit, and shall not alter, sell, rent out, lend or otherwise illegally transfer the same.
Meanwhile, the Implementing Measures require a labor dispatching entity to, prior to March 31 each year, submit a report on last year’s labor dispatching business operations to the relevant Licensing Authority, and truthfully report the following matters:
(1) Information on business operations, and last year's financial auditor's report;
(2) The number of dispatched workers, and information on the conclusion of labor contracts and the union participation of the dispatched workers;
(3) Information on the labor remunerations paid to the dispatched workers;
(4) Information on the social insurance participation of, and the contribution of social insurance premiums by, the dispatched workers;
(5) Information on the employers and the positions to which the dispatched workers are sent, the number of dispatched workers, the period of labor dispatching, etc.;
(6) Information on the labor dispatching agreements signed with employers, and the performance of statutory obligations by the employers; and
(7) Information on the establishment of subsidiaries, branches, etc.
The subsidiaries or branches established by a labor dispatching entity shall submit the reports on their last year’s labor dispatching business operations to the administrative departments of human resources and social security that previously handled the licensing or record-filing formalities.
Besides, the Implementing Measures stipulated that entities engaging in labor dispatching business prior to the implementation hereof may operate new labor dispatching business only after obtaining labor dispatching administrative licensing in accordance with these Measures. Those that fail to obtain labor dispatching administrative licensing upon the implementation hereof are not allowed to operate new labor dispatching business.
General Administration of Customs Promulgates the Measures for the Supervision and Administration of the Customs of the People’s Republic of China for Hengqin New Area (Tentative)
On June 27, 2013, the General Administration of Customs Promulgated the Measures for the Supervision and Administration of the Customs of the People’s Republic of China for Hengqin New Area (Tentative) (“Measures”), which shall be applicable to the Customs’ supervision, administration and inspection on transportation means, cargos, articles entering and leaving Hengqin and enterprises, locations and so forth registered at the Customs within Hengqin.
It is provided in the Measures that the port between Hengqin and Macao will be subject to “first line” administration; the passage between Hengqin and other areas within Customs border of the People’s Republic of China will be subject to “second line” administration. The Customs will implement differentiated administration on the principle of “relax restrictions on first line, strictly control the second line, separate passenger and cargo, classified administration”.
Meanwhile, the Measures stipulate that, Cargos and articles which are prohibited from entry by laws, administrative regulations and rules shall not enter Hengqin from “first line” Customs. Cargos which are prohibited from exit by laws, administrative regulations and rules shall not enter Hengqin from “second line” Customs through customs declaration. Enterprises in Hengqin shall not carry out processing trade business of products listed in the Catalogue of Prohibited Commodities in Processing Trade. The Customs shall, except otherwise regulated by laws, administrative regulations and rules, conduct archival administration on cargos in bond entering and leaving Hengqin and overseas regions, tax exempted cargos in relation to production and cargos of tax refund.
With regard to regulation and supervision of Hengqin New Area and importing and exporting goods, the Measures stipulate that the sale of outside goods related to production to Hengqin New Area shall be deemed as the export thereof, on which the Customs shall implement the tax refund policies, except the goods under the following categories: (1) daily consumption, outside goods purchased for commercial real estate development projects, etc.; (2) goods not entitled to tax refunds, as specified by the relevant laws, administrative rules and regulations; (3) goods entered into the list of goods not entitled to second-line tax refund policies formulated by the Ministry of Finance, State Administration of Taxation and the General Administration of Customs. Goods imported to Hengqin New Area and entitled to tax refund policies shall be stored at the site acknowledged by the Customs.
Goods exported outside from Hengqin New Area subject to customs declaration shall be administered in respects of import quotas and licenses & other documents. For different goods that are of the same import quota and with the same licenses & other documents and of which import quotas and licenses & other documents have been verified at the customs entrance stage, will not undergo inspection of import quotas and licenses & other documents. Goods that are imported from outside Henqqin New Area will not be subject to the administration of import quotas and licenses & other documents.
For supervision over the goods in Hengqin New Area, the Measures require that if the sale of goods in Hengqin New Area falls under any of the following circumstances, the relevant customs formalities shall be handled in advance, and import tariff, VAT and consumption tax payable at the import stage shall be paid in accordance with Article 13 of the Measures: (1) the sale is targeted at individuals; (2) the sale is targeted at entities within Hengqin New Area and is not used for manufacturing purpose; (3) other circumstances in which taxes should be levied.
Tax-exempt goods entering Hengqin from outside shall subject to such regulation as follows: (1) goods as is or finished products processed with tax-exempt goods and exported via the first-line, shall be subject to record administration; (2) goods as is or finished products processed with tax-exempt goods and sold and used for production in Hengqin, shall be subject to electronic account book administration; (3) goods as is or finished products processed with tax-exempt goods and sold to outside processing and trading companies or transported to areas specially supervised by the customs or supervision sites in bond, shall be subject to the relevant regulations on bonded goods.
Interpretations of the Supreme People’s Court on Several Issues Concerning the Application of the “Insurance Law of the People’s Republic of China” (II)
In June 6, 2013, the Supreme People’s Court promulgated the Interpretations on Several Issues Concerning the Application of the “Insurance Law of the People’s Republic of China” II (hereinafter referred to as the Interpretations II), further specifying the application of law involved in the section of General Provisions under the chapter of Insurance Contracts in the Insurance Law.
According to the Interpretations II, if, in life insurance, the policy holder has no insurable interest in the insured which results in the invalidity of the insurance contract and the policy holder requests the insurer to refund the insurance premium less relevant service charges, the people’s court concerned shall uphold such request.
According to the Interpretations II, if an insurance contract, instead of being signed or sealed by the policy holder or the agent of the policy holder personally, is signed or sealed by the insurer or the agent of the insurer on behalf thereof, the insurance contract shall not be binding on the policy holder. However, if the policy holder has paid the insurance premium, the policy holder shall be deemed as ratifying such signature or seal affixed on behalf thereof.
If the policy holder confirms, by signing or sealing, an insurance policy or certificate filled out by the insurer or the agent of the insurer on behalf thereof, such information filled out on behalf of the policy holder shall be deemed as expressing the true intent of the policy holder, unless there is evidence proving that the insurer or the agent of the insurer is involved in any of the circumstances prescribed in Article 116 and Article 131 of the Insurance Law.
Interpretations II provide that the disclosure obligation of the policy holder shall be limited to the scope and content of the inquiry made by the insurer. If the parties concerned have any dispute over the scope and content of the inquiry, the insurer shall bear the burden of proof.
If the insurer requests the rescission of the contract on the ground that the policy holder violates the obligation for making honest disclosure regarding the general clauses listed in the inquiry form of the insurance application, the people’s court shall not uphold such request, unless such general clauses have specific content.
With regard to the insurer’s obligation of indicating and explaining, Interpretations II stipulate that, at the time of conclusion of the insurance contract, the insurer indicates the clauses exempting the insurer from liability under the insurance contract in the insurance application form, the insurance policy or other insurance certificates by using characters, character style, symbols or other remarkable signs, which are sufficient to attract the policy holder’s attention, the people’s court concerned shall determine that the insurer has performed its obligation to indicate such clauses as prescribed in paragraph 2 of Article 17 of the Insurance Law.
If the insurer provides the policy holder with explanations, in writing or orally, about the concept, content and legal consequence of the clauses exempting the insurer from liability under the insurance contract that an ordinary person can understand, the people’s court concerned shall determine that the insurer has performed its obligation to clearly explain such clauses as prescribed in paragraph 2 of Article 17 of the Insurance Law.
If the insurance contract is concluded through such means as network or phone calls and insurer indicates and clearly explains the clauses exempting the insurer from liability through webpage, audio, visual or other form, the people’s court concerned may determine that the insurer has performed the obligation to indicate and clearly explain such clauses.
With regard to the identification of the effectiveness of the insurance contract, the Interpretations II provide that, in case of any discrepancy among the contents set forth in the insurance contract, the following standards shall prevail:
(1) In case of any discrepancy between the insurance application form and the insurance policy or other insurance certificates, the insurance application form shall prevail. However, if the discrepancy is explained by the insurer and consented to by the policy holder, the content indicated in the insurance policy or other insurance certificates signed by the policy holder shall prevail;
(2) In case of any discrepancy between non-standard clauses and standard clauses, the non-standard clauses shall prevail;
(3) In case of any discrepancy of the dates recorded in the insurance certificates, the content entered at a later time shall prevail; and
(4) In case of any insurance certificate containing both printed and handwritten contents, the handwritten contents signed or sealed by both parties concerned shall prevail.
The Supreme People’s Court Promulgates Reply to Whether the Maritime Court can Apply Petty Lawsuit Procedure
The Reply to Whether the Maritime Court can Apply Petty Lawsuit Procedure from the Supreme People’s Court (Reply) was adopted at the No.1579 Meeting of Judicial Committee of the Supreme People’s Court on May 27, 2013 and will be implemented as of June 26, 2013.
It is identified in the Reply that the petty lawsuit procedure was provided in the Chapter of Summary Procedure in the Civil Procedure Law of the People’s Republic of China amended in 2012 and Article 98 in the Special Maritime Procedure Law of the People’s Republic of China provides that the maritime courts may apply summary procedure. Therefore the maritime courts may apply petty lawsuit procedure to judge simple maritime trade cases. The maximum amount of subject matter applicable to petty lawsuit procedure shall be 30% of average annual salary of employees in the previous year in the province, autonomous region, municipality directly under the Central Government where the maritime court or its detached tribunal locates.
Implementing Opinions on Delegating the Authority of Examination and Approval to Pilot Branches of Shanghai Zhangjiang High & New Technology Industrial Development Park
On June 8, 2013, the General Office of Shanghai Municipal People’s Government promulgated the Implementing Opinions on Delegating the Authority of Examination and Approval to Pilot Branches of Shanghai Zhangjiang High & New Technology Industrial Development Park (hereinafter referred to as the “Implementing Opinions”). According to the Implementing Opinions, Zhangjiang High & New Technology Industrial Development Park shall serve as the pilot and trial platform for advancing the reform of the administrative examination and approval system; and, in combination with the progress of the reform of the administrative examination and approval mechanism, the delegated or cancelled authority will be increased.
As specified by the Implementing Opinions, the scope of the municipal administrative authority of examination and approval delegated this time shall cover:
(1) Land Transfer
Land transfer within the pilot branch, subject to the industrial direction and specification of industrial categories, may be conducted through public auction and oriented listing, and for which the solution-based land transfer system shall be effectuated. Preliminary consulting work during land transfer shall be in the charge of the governmental administrative organ of the pilot branch assigned by the land planning and administration department at the district (county) level according to actual needs.
(2) Examination and Approval of Incorporation of Foreign-funded Enterprises
Examination and approval of the incorporation and alteration of any encouraged foreign-funded enterprise with a total investment quota of below USD300,000,000 shall be in the charge of the governmental administrative organ of the pilot branch (unless there is a special provision in that regard).
(3) Registration of Entities
Limited liability companies established in the pilot branch and consistent with the industrial direction of Zhangjiang High & New Technology Industrial Development Park, after accredited by the governmental administrative organ acknowledged by the Regulatory Committee of Zhangjiang High & New Technology Industrial Development Zone and the Municipal Administration for Industry and Commerce, shall be subject to registration with “zero deposit” and shall pay up their registered capital within two years following their establishment. In the meantime, service entities that provide supporting services for the pilot branch and neither disturb residents, affect environment or public security nor involve preposed licensing may apply for centralized registration with their domicile as the site designated by the governmental administrative organ acknowledged by the Regulatory Committee of Zhangjiang High & New Technology Industrial Development Zone and the Municipal Administration for Industry and Commerce.
In addition, other procedures, including planning parameter adjustment, design document review, environmental impact assessment, preventive sanitation examination, accreditation of projects concerning high and new technologies being transformed into deliverables, project record and approval, design scheme review, software entity accreditation and software product registration as well as accreditation of entities specializing in high and new technologies, accreditation of technology-advanced service entities, etc., shall be examined, ratified or recorded by the governmental administrative organ of the pilot branch.
Surely, the Implementing Opinions emphasize that, if the relevant department of the State Council or the Municipal Government has special provisions on the aforesaid administrative authority, such provisions shall prevail.
Beijing Municipal Higher People’s Court Guidelines (“Q&A”) to Several Issues Related to Adjudicating E-Commerce Cases Involving IP Infringement
On December 28, 2012, Beijing Municipal Higher People’s Court promulgated the Guidelines to Several Issues Related to Adjudicating E-Commerce Cases Involving IP Infringement (hereinafter referred to as the Guidelines), explaining in detail the hottest issues related to infringement upon intellectual property in e-commerce practices.
(1) Basic principles for adjudicating E-Commerce Cases Involving IP Infringement
According to the Guidelines, when adjudicating E-commerce Cases involving IP infringement, discretion should be made according to law and by balancing benefits of right holder, electronic commerce platform operator, network user and the public. An electronic commerce platform operator should bear necessary and reasonable duty of noticing the legality of intellectual property. A right holder or an electronic commerce platform operator that can prevent or stop infringement at lower cost should take necessary measures in an active and timely manner, otherwise, they shall bear adverse consequence.
(2) Requirements for the infringement liability born by an electronic commerce platform operator.
According to the Guidelines, when a network seller violates others’ intellectual property by providing the trading information accused of an infringement or undertaking corresponding trading activities using the network services of an electronic commerce platform operator, the network seller shall bear the infringement liability to compensate for losses and the like according to law.
Also, according to the Guidelines, when an electronic commerce platform operator knows that a network seller violates others’ intellectual property by using network services provided thereby and yet does not take necessary measures in a timely manner, the electronic commerce platform operator shall bear joint and several liabilities for compensation with the network seller for damages done after knowing.
With regard to how to judge “Know” of an electronic commerce platform operator, the Guidelines stipulate that, “Know” includes “actually know” and “should have known”. “Actually know” means an electronic commerce platform operator actually knows the existence of a tortuous act; “Should have known” means according to the requirement of the principle of interests balance and the principle of reasonable prevention, an electronic commerce platform operator shall notice the existence of a tortious act in certain circumstances. In general, an electronic commerce platform operator has no obligation to actively supervise the trading information to the public through the network service provided thereby. The “Know” of an electronic commerce platform operator for the existence of a tortious act cannot be judged for sure just because an electronic commerce platform operator conduct a pre-supervision for the legality of the trading information according to relevant regulations, or a network user violates others’ intellectual property by using network services thereby.
In addition, the Guidelines include explanations to how to judge whether an electronic commerce platform operator “knows that a network seller violates others’ intellectual property right by using network services thereof” before public circulation of certain information, how to judge whether an electronic commerce platform operator “knows or should have known that the trading information accused of an infringement is circulated through network services thereof” after public circulation of trading information, and how to judge whether an electronic commerce platform operator “knows or should have known that the trading information accused of an infringement or corresponding trading activities violate others’ intellectual property right” after public circulation of trading information, etc.
(3) Notice from Right Holder and Counter Notice from Network Seller
According to the Guidelines, Notice from a right holder to the network operator, in which the right holder claims its rights, shall include the following contents:
(1) The information of a right holder, such as the name (title), contact information and address;
(2) Detailed information sufficient to accurately locate the trading information accused of an infringement;
(3) Evidence materials that prove relevant cases such as the right ownership and infringement constitution;
(4) The promise of a right holder for the authenticity of the notice.
When the notice sent by a right holder fails to meet the above conditions, it is regarded that the notice is not sent.
Meanwhile, the Guidelines stipulate that a network seller may submit a counter notice to request the restoration of the deleted contents, blocked or disconnected links within the proper time limit informed by an electronic commerce platform operator. When a counter notice is not sent within the time limit, it is regarded that the network seller acknowledges necessary measures taken by the electronic commerce platform operator.
A counter notice shall include the following contents:
(1) The authentic name (title), contact information and address of a network seller;
(2) Detailed information sufficient to accurately locate the trading information;
(3) Evidence materials to prove that an infringement is not committed; and
(4) The promise of a network seller for the authenticity of the counter notice.
When the counter notice sent by a network seller fails to meet the above conditions, it is regarded that the counter notice is not sent.
Legal Practices
“Reverse Takeover” in HK Back-door Listing
According to media report, since 2012, due to restrictions of the domestic market on financing, difficulties in IPO and uncertainties in relevant policies, domestically funded real estate companies have sought a new financing approach, i.e. back-door listing in Hong Kong. Based on statistics, since early 2012, at least seven domestically funded real estate companies (including Greenland Holding Group Co.) have stepped on the road to financing in the HK capital market by way of purchasing equities of HK listed companies.
However, the seemingly glorious and hilarious “curve listing” behind its back has legal risks worthy of noticing and valuing, among which, the most crucial one lies in the identification of “Reverse Takeover” of back-door listing.
Provisions of “Reverse Takeover” are the latest revision made by Hong Kong Exchanges and Clearing Limited in 2004 of the Listing Rules, specifying the supervision and regulation of Hong Kong Exchanges and Clearing Limited on back-door listing issues. Clause 14.06 (6) of the Listing Rules stipulates that, “anti-purchase action” refers to (1) if the assets purchase involved in several or a series of transactions have constituted significant takeover matters, and there is a change to the control right of listing issuer (excluding affiliated companies) at the same time of the takeover; or the relevant takeover leads to a change to the control right of the company taken over; (2) or several or a series of assets purchase (individually or collectively) conducted 24 months after the transfer of the control right of the listing issuer (excluding affiliated companies) have constituted significant takeover matters.
If accredited as “anti-purchase action”, then the issuer of the proposed anti-purchase action will be treated as the applicant for new listing and has to satisfy a number of conditions and restrictions for the new listing applicant.
According to public media report, the back-door listing of China Merchants Property Development Co., Ltd. has been accredited as anti-purchase. In June 2012, China Merchants Property Development Co., Ltd. purchased 70.18% equities of Tonic Industries Holdings Limited (00978.HK), but soon announced to input eight domestic real estate projects to a shell company in April 2013 instead of waiting for the two-year capital injection “safe period” to pass, and created Tonic as its first overseas listing platform. In its announcement, China Merchants Property Development Co., Ltd. pointed out that the relevant purchase constituted a substantial purchase, and since it involves assets purchase by the holding shareholders within 24 months after obtainment of the control right, the purchase in fact constituted an anti-purchase of Tonic, under which circumstance, Tonic shall be deemed as the applicant for new listing, and the purchase has to be approved by Hong Kong Exchanges and Clearing Limited Listing Committee for new listing and approved by the special assembly of shareholders. On May 3, 2013, China Merchants Property Development Co., Ltd. submitted the application for new listing.
Therefore, for a company in the Mainland of China which aims at back-door listing in Hong Kong, it should pay attention to the relevant regulations of the Listing Rules formulated by Hong Kong Exchanges and Clearing Limited in order to minimize the possibility of such transaction being accredited as “Reverse Takeover”. Prior to its planned back-door listing, arrangements should be carefully considered as to the scale of purchase and assets input schedule on the basis of the actual needs of the company in order for the transaction of “back-door listing” to avoid being accredited as “anti-purchase transaction” and thus influencing the financing cost and schedule arrangement of the company.
What needs to be noticed by companies in the Mainland of China is that, “it turns out to be a misunderstanding that the back-door listing transaction will not be accredited as “anti-purchase transaction if it does not satisfy the regulations of Article 14.06 (6) of the Listing Rules”.
According to the confirmation made by Hong Kong Exchanges and Clearing Limited Listing Committee in the “2007 Annual Report of Listing Committee”, although paragraph (a) and (b) of Article 14.06 (6) of the Listing Rules have mentioned the two special forms of anti-purchase, these two forms do not cover all the other conditions. As a matter of fact, transactions that are within the scope of back-door listing but are not entered into paragraph (a) and (b) of Article 14.06 (6) of the Listing Rules will nonetheless be accredited as anti-purchase actions and therefore have to satisfy the provisions of the Listing Rules.
Meanwhile, as reflected in the case studies published by Hong Kong Exchanges and Clearing Limited, if a listed company itself does not have any major operating assets and has stopped its original business (i.e. such listed company is essentially a listed shell company), and its purchase constituted a part of a series of transactions and arrangements intended for the new business to become listed and thus dodged the regulations on new listing, the listed company will be identified as engaging in “anti-purchase action”.
Therefore, for a company in the Mainland of China, when planning for back-door listing, it should not only focus on the scale and progress of purchase but also survey the background and status of the target company: minimize the possibility of choosing a “shell company” without any assets or operating business and choose the target company which relates to its own business, in order to avoid being identified as engaging in “anti-purchase action”, which might affect the arrangement and goal of back-door listing.
(The author’s contact information: jasonxia@hllawyers.com)
Legal Relief for Designer Whose Name Has Been Registered as Trademark
When models are striding down the catwalk showing fashion outfits or accessories or stars showing their charm on the red carpet, the spotlight covers not only these models or stars, but also the fashion designers who create their gorgeous make-ups and costumes. Exposed to the general public on fashion magazines and entertainment media, designers are now called the soul of the fashion circle, with their popularity and commercial value rising rapidly. At the same time, either for creating a western style name for their brands or for taking a “free ride” of some famous fashion designers or for charging highly for brand/trademark transfer, more and more entities have “stealthily” registered names of domestic and foreign famous designers as trademarks.
If this happens in China, what remedial measures can be sought by the designer
I. From the perspective of the infringement upon the right of name
Article 31 of the Trademark Law stipulates: “an application for trademark registration shall not prejudice any pre-existing right of others”; in other words, it is a prohibition of any malicious registration of others’ trade name, industrial design, works, name, portrait, etc. as trademarks. Article 3 of the Trademark Review and Adjudication Standards (2005) promulgated by the Trademark Office and the Trademark Appeal Board has explicit provisions on the right of name for reference by the Trademark Office and the Trademark Appeal Board when reviewing trademarks and trying trademark-related cases. Registration of the translation of a domestic or foreign designer’s name (including original name, stage name, nickname, etc.) without permission shall be deemed as an infringement upon such designer’s right of name.
1. File an opposition and application for cancellation
Pursuant to the Trademark Review and Adjudication Standards, an applicant who registers another person’s name as trademark without permission and therefore causes damages or potential damages to the person’s right of name, then such trademark will not be approved for registration or will be cancelled. Specifically speaking, the Trademark Law provides the following remedial measures:
(1) Trademark opposition
Within the publication period of the trademark after preliminary review, opposition may be filed to the Trademark Office within three (3) months as of the date of the publication.
(2) If the trademark has been registered, an application for deregistering such trademark can be filed to the Trademark Review Committee within five (5) years as of the date of registration.
When filing an opposition or application for cancelling the trademark, the designer is required to provide promotional materials, etc. to demonstrate his/her (or his/her name’s) recognition in the profession and the general public.
2. Claim of infringement upon the right of name
If a designer’s image is seriously impaired when his/her name is carried by some special commodities (namely, toilet cleaning products, fertilizers, veterinary drugs, sex products, etc.), the designer may otherwise apply to the court, claiming infringement upon his/her right of name and requesting cessation of the infringement, recovery of reputation, elimination of adverse effect and formal apologies as well as compensations against actual losses and spiritual damage.
During the black-out period prior to the preparation for legal actions and the cancellation of the disputed trademark, the infringed may send a lawyer’s letter to the person who maliciously registered the trademark: warning him/her of the infringement upon the right to name and requesting him/her to stop such infringement and not to indicate explicitly or implicitly any commercial or personal relation between the designer and the trademark, the company or the fashion outfits designed by the company; otherwise the designer shall hold the infringer legally liable.
From the above analysis, we can conclude that the remedial measure taken from the perspective of infringement upon the right of name is supported by statutory regulations, under which circumstance, the procedures of proving and judging are relatively easier. However, for a designer, especially a foreign designer, this remedial measure is time-consuming and costly.
II. From the perspective of confusion on commodities sources
When we refer to the trademark right, we cannot avoid a crucial function of trademark: directed at the source of commodities and services and aimed at zero confusion to consumers on the sources of commodities and services. One issue that might be put forward by the designer is: if the infringer sells fashion outfits bearing the designer’s name as trademark, then the consumers will misunderstand that such outfits were designed by the designer or the infringer bears any commercial, investment and shareholding or personal relationship, etc. with the designer, so that the consumers will be affected in making purchase choices. Therefore, it is worth mentioning the protection of a designer’s name from the perspective of confusion on commodities sources.
According to Paragraph 3 of Article 5 of the Law of the People’s Republic of China against Unfair Competition, “using without authorization the name of another enterprise or person, thereby leading people to mistake their commodities for those of the said enterprise or person”, the infringed can file a lawsuit to the court against such unfair competition act and claim economic losses. However, the fact of “leading people to mistake……” needs to be proved by the plaintiff. For example, if a fashion design company registered its designer’s name without permission, imitated the fashion outfits designed by its designer, used the designer’s name explicitly and implicitly in advertising activities, etc., thus misleading the public to the false belief that such fashion outfits were designed by this designer, the designer could sue the company in accordance with the Law of the People’s Republic of China against Unfair Competition.
We believe that, whichever approach we adopt, the designer will face the difficulty in bearing the burden of proof and suit duration. Therefore, the designer shall consider registering the desired trademark in the market that he/she wishes to expand as soon as possible.
Attachment: “Case of Dispute over the Trademark ELIZABETH EMANUEL”
Elizabeth Emanuel, the well-known fashion designer in England (known for designing the wedding dress of Princess Diana), registered her name as a trademark (ELIZABETH EMANUEL) and such trademark belonged to the company for which she worked. Not long ago, the company became bankrupt due to poor operating conditions, and all the properties of the company, including the trademark ELIZABETH EMANUEL, were purchased by another company. Thereafter, Elizabeth Emanuel was hired by such purchaser but soon resigned as she did not get on well with such purchaser. In her succeeding lawsuit, Elizabeth Emanuel claimed that the original purchase was unfair. When consumers are buying the clothes bearing the trademark ELIZABETH EMANUEL, they tend to believe that these clothes were designed by Elizabeth Emanuel even after her former employer was purchased. Therefore, if such trademark is used, the consumers will probably be misled.
Common consumers would have a consistent belief that the clothes related to the trademark ELIZABETH EMANUEL symbolized the participation of Elizabeth Emanuel in the concept and design of such clothes. The problem to be tackled by the Court lied in whether such trademark ELIZABETH EMANUEL would mislead the general public in respect of the above belief after Elizabeth Emanuel resigned from the purchaser.
European Court of Justice (now referred to as Court of Justice of the European Union) rejected the claim of Elizabeth Emanuel. As stated by the Court, the function of a trademark is not only to impose the product quality obligation on the trademark owner, but also to prevent any confusion caused to consumers on the sources of commodities. Ultimately, the Court determined that, although the purchase by common consumers of fashion outfits bearing the trademark ELIZABETH EMANUEL might be affected by their impression that Elizabeth Emanuel participated in the design of such fashion outfits, the source and characteristics of such fashion outfits were still guaranteed by the trademark owner, not yet leading to any deception.
This judgment was of great significance. If the Court supported the claim of Elizabeth Emanuel, then such renowned fashion companies such as George Armani and Channel would have been determined as misleading or deceiving the general public by using the names of their dead designers, leading to the result that these companies cannot use these trademarks.
However, the particulars of this case were relatively peculiar: the purchaser legally accepted the transfer of the trademark, which differed from the malicious rush registration of the designer’s name. However, this did not affect the analysis of the confusion on the sources of commodities. If the purchaser, in addition to selling the fashion outfits bearing the trademark ELIZABETH EMANUEL, did not indicate explicitly or implicitly by any means that ELIZABETH EMANUEL bore any individual or commercial relation with Elizabeth Emanuel (only that the trademark was identical with the name of Elizabeth Emanuel), then there should not be any confusion on the sources of commodities.
(The author’s contact information:joannechen@hllawyers.com)
