Haworth & Lexon Law Newsletter
No.10, 2002 (Total:No.14)    October 20th, 2002
Edited by Haworth & Lexon

Guidelines

   The legal frame of acquisition of listed companies has been basically formed

   The sum-up and prospect of judicial practice of trademark disputes

    Latest Laws and Regulations

     Judicial Interpretations Relating to Application Law in Hearing Trademark Civil Disputes

      CNNIC Domain Name Dispute Resolution Policy

      The Interpretation of Several Issues on Application of Law in Hearing Correctly the Civil Copyright Cases

China Securities Regulatory Commission has promulgated "Administrative Measures for Acquisition of Listed Companies" (the Measures) as well as its accompanying regulation "Administrative Measures on Disclosure of Changes in Shareholdings of Shareholders of Listed Companies" (the Administrative Measures) recently. Both of "the Measures" shall come into force since December 1st, 2002. These two operation detailed rules with the principle of listed companies' acquisition stipulated in "Securities Law of PRC", compose the preliminary, comparatively intact law frame of acquisition of listed companies in China.

The Measures firstly define the acquisition of listed companies, and points out that the buyers can choose methods from tender offers, share purchase agreement, and bidding to acquire listed companies to gain the actual control over a listed company. The Measures also respectively stipulate the concrete operation rules and operation program of share purchase agreement and tender offers. The Measures strengthen the fiduciary duty and the obligations of the acquired company's directorate, which should be paid some special attention.

The Measures emphasize the fiduciary duty in the acquisition of listed companies: the controlling shareholder as well as other effective controlling parties of the listed company bear fiduciary duty towards the company and its shareholders; buyers bear the fiduciary duty towards the listed company they acquired and the other shareholders of the company; directors, board of supervisors and senior managers of a listed company also bear the fiduciary duty towards the company and its shareholders. In the case of acquisition by share purchase agreement, the directorate of the acquired company shall air its opinion to the possible impact on the company in time after the buyer notices the acquired company, and the independent director shall air his opinion alone while forming the opinion of the directorate; in the case of acquisition by tender offer, the directorate of the acquired company shall engage the specific institution such as independent financial consultant, analyze the financial condition of the company, air its specialized opinion to whether the condition of tender offer is fair and reasonable and to the possible impact on the company, and shall suggest the shareholders whether they accept the tender offer.

Acquisition of listed companies usually comes with counter-acquisition and the directorate will usually take actions of counter-acquisition independently or with great shareholders for its own benefits. The Measures stipulate clearly that the actions and decisions about acquisition that done by the directors, supervisors and senior managers of the acquired company shall not do harm to their legal rights and interests. After the buyers make the hint announcement, the directorate of the acquired company shall not take actions to counter-acquisition such as suggesting to issue stocks or convertible company bones and modifying company regulations. Of course, The Measures also prohibit that the acquired company provide financial imbursement in any form to the buyers.

Since changes of holding shares tend to be the prelude of the transformation of listed company's actual control, China Securities Regulatory Commission issued "Administrative Measures for Acquisition of Listed Companies" as well as its accompanying regulation "Administrative Measures on Disclosure of Changes in Shareholdings of Shareholders of Listed Companies", in order to strengthen the disclosure obligations of the shareholders who hold or control great volume stocks of the listed company, to avoid the inside business in process of stock rights transfer, and to protect the benefits of medium and miniature investor.

The PRC Supreme Court has promulgated "Judicial Interpretations Relating to Application Law in Hearing Trademark Civil Disputes" recently (hereafter referred to as "the Interpretations"), which has come into force since Oct.16th, 2002. The Interpretations are the sum-up and prospect of the judicial practice of trademark disputes, the main contents are:

I. Make many doable provisions of well-known trademark protection

The Interpretations stipulate that people's court can ascertain according to law whether the registered trademark is well-known, and determine the expand protection of well-known trademark, "reproductions, imitations and translations of others registered well-known trademarks or their principal parts thereof to be used as trademarks on goods that are not identical or similar" belongs to the infringement of exclusive right of trademarks.

II. New provisions of jurisdiction of trademark infringement case.

The Interpretations stipulate clearly that the place where the result of infringement occurred will not be the accordance of jurisdiction any more, instead that the court in places "where the infringement takes place or where the infringing goods are stored or sealed for investigation and impounded or where the defendant resides" shall have jurisdiction over the case. Furthermore, the place where the infringing goods are sealed for investigation and impounded means the place where the infringing goods are sealed for investigation and impounded by the administrative authorities of the customs and of the industry and commerce authority.

III. Define the interested parties, pointing that all of them can bring an action of trademark infringement singly.

Article 3 stipulates clearly the kinds of the licenses to use trademarks (Exclusive license, Sole license, General license) and their respective definition, and points that the licensee under a general licensing agreement may bring an action pursuant to an express authorization of the trademark registrant.

IV. It is the first time to stipulate that legal fees should be included in the amount of compensation of the party.

The Interpretations stipulate clearly that at the request presented by the party in action or as the specific circumstance of the case may require, the people's court may include legal fees in the amount of compensation pursuant to the regulations of the relevant governmental departments.

V. Introduce operable methods and standards to judge whether trademarks are identical or similar.

The Interpretations firstly determine what constitutes identical or similar trademarks. Meanwhile it stipulates that the standard should be the general attention of the relevant public to determine whether the trademarks are similar, consideration shall also be made to the prominence and popularity of the registered trademarks for which protection is being sought.

VI. Determine the amount of compensation more clearly.

The right-holder can choose the method to ascertain the amount of compensation to be paid, which could be calculated as the amount of gains obtained as a result of infringement as well as the losses caused by the infringement, and the amount of gains or the losses caused by the infringement may be calculated by the quantity of sales of the infringing goods and based on the unit profit of the goods bearing the registered trademark. Meanwhile the Interpretations also stipulate the conditions of the legal compensation and factors in its determination of the amount of legal compensation.

VII. Introduce careful thoughts of dealing with the conflicts of trademark right and other rights.

1), For the conflict of trademark right and domain names, the Interpretations only stipulate that it will be infringement as long as use of words identical with or similar to the trademarks of others as domain names to conduct electronic commerce for the trading of relevant goods through such domain names.
2), For the conflict of trademark and names of enterprises, the Interpretations only stipulate that it will be infringement as long as using of words identical with or similar to the trademarks of others "prominently" as names of enterprises on identical or similar goods.

"CNNIC Domain Name Dispute Resolution Policy"has come into force on Sep.30th, 2002(hereafter referred to as "the policy"). The policy specializes the disputed domain name as CN domain name and Chinese domain name charged by Chinese Internet Network Information Center, and stipulates the domain name disputes shall be resolved at the disputes settling institutions that Chinese Internet Information Center has licensed, which carry out with the disputes settling system of responsibility of specialist group. According to the policy, the complaints shall be supported if they come up to the following conditions: the complained domain name is identical with the name or sign of civil rights the complainant has, with the similitude enough to make confusions; the holder of the complained domain name has no legal rights and interests of the domain name or its main part; the owner of the complained domain name registers and uses the domain name in bad faith. To determine what is bad faith, the policy also introduce some standards, for instance, registering or assigning domain names is in order to sale, rent or transfer domain names in other forms for unlawful profits. Before binging an action according to the policy, or during the progress of settling disputes, or after the specialist group adjudicates, both of the complainant and the complained person can bring an action about the same disputes to the Chinese court at the place where Chinese Internet Information Center locates, or bring an arbitrate based on the agreement. Chinese Internet Information Center promulgated "Rules for CNNIC Domain Name Dispute Resolution Policy" synchronously.

The State Council promulgated "The Interpretation of Several Issues on Application of Law on dealing with the Civil Copyright Cases" in recent days, which shall come into force on Oct.15th, 2002(hereafter referred to as "the Interpretation"). The Interpretation stipulates that when hearing the cases of civil in infringement of copyrights that have been handled by the administrative department of copyrights, the People's Court should conduct complete investigation on the case fact. The Interpretation crystallizes the jurisdiction of civil copyright case, the ascertainment of relevant evidence, the legalization of the evidence producing, the notaries evidence, the disputes concerning the priority of signatures of the works, and the attribution, the reprinting and the calculation concerning interested party's compensation of the copyright that Copyright Law didn't stipulate clearly. At the same time, the interpretation stipulates in detail whether the publishers or producers shall undertake the compensatory liabilities, especially pointing "In case the publishers have not take the duties of reasonable cares for the authorization of their publishing acts, the sources and signature of the manuscripts and the content of publications under edition, they shall undertake the compensatory liabilities according to the provisions of Article 48 of the Copyright Law". The Interpretation stipulates clearly that the reasonable legal fees that the party spent in the case shall be compensated.