"Haworth & Lexon Law Newsletter" is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, Intellectual property rights, 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.
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Latest Laws and Regulations
§News of Haworth & Lexon
§Latest Laws and Regulations
The Law says that the financial institutions set up in China and the specific non-financial institutions which have the anti-money laundering obligations according to the relevant regulations shall perform their anti-money laundering obligations, requires them to implement a series of anti-money laundering measures, such as supervision and clients’ identity identification. The Law also provides that the administrative department on anti-money laundering of the State Council, namely the China People’s Bank shall be responsible for the supervision and management on anti-money laundering, and the administrative department on anti-money laundering of the State Council or its detached offices at a provincial level may undertake investigation if they find there is any suspicious transactions which need investigation and verification.
The Law requires the financial institutions set up a clients’ identity identification system according to the regulations. For example, the financial institutions shall require the clients to submit actual and valid identity certificates when establishing business relationship with the clients or providing once-for-all financial service above a provided amount, and the information of the clients shall be kept records for at least five years after the completion of the transaction. The financial institutions shall implement the system of reporting large money transactions and suspicious transactions according to the relevant regulations.?
The Law provides that if a client asks to transfer the money in the account involved in the investigation abroad during the investigation, subject to the approval of the person-in-charge of the administrative department on anti-money laundering of the State Council, a tentative freezing measure can be adopted, which shall not be more than 48 hours.
The “retailer” here has a specific definition, which means “the enterprises and their branches which have been registered in the administrative departments for industry and commerce, which directly sell commodities to consumers, and whose annual sales volume (for enterprises engaging in chain operations, their sales volume includes the sales volume of their chain stores) is 10 million RMB or more.”
The Measures provides that the retailers shall not abuse its preferential position to enter into any unfair transaction or impede any fair competition. The examples for the former are requiring the suppliers to undertake any commodity wearing liability beyond their agreements, enforcing the suppliers to return the profit unconditionally or force the suppliers to purchase the designated commodity or accept the designated service. The examples for the latter are limiting the prices of the commodity sold by the suppliers directly to the customers or other business operators, or limiting the supplies to other retailers or sales service provided by the suppliers.?
The Measures provides if the retailer charges the suppliers any promotion service fees, they shall get the consent from the suppliers in advance, enter into agreement and the relevant issues about the service shall be clearly defined in the agreement. The Measures also provides that the retailers shall not charge or charge the suppliers in disguised forms the following fees: (1) fees charged for signing or renewing a contract; (2) requesting suppliers who have normally-used commodity bar codes to buy the in-store bar code; (3) the fees of the bar code charged on the suppliers who use in-store bar codes exceed its costs; (4) any fees of decoration or ornament charged by the suppliers which are not used particularly in the specific commodity sales areas of the suppliers; (5) fees charged for celebration for festivals or anniversary, but not providing promotional service; (6) any other fees which have no direct relationship with the sales of commodity and which shall be borne by the retailers themselves or which are charged without providing service.
In payment of goods, the Measures requests the longest term for payment agreed by the retailers and the suppliers shall not be more than 60 days, and the retailers shall not delay in payment for reasons such as failure to supply few of goods in time, few formalities for the return of goods are pending, or the supply contract is not renewed.
The Circular provides that if the employees acquire put options at a discount, the balance between the incomes from the transfer of put options and the payments actually made for the discounted put options shall be “net incomes from transfer of put options”. If the employees acquire the put options at a discount, the exercising price shall include the price actually paid by the employees while purchasing the put options at a discount.
If the employees do not sell or purchase the stock on the exercising dates, but they get interests from the balances between the market prices of the stock designated by the put options on the exercising date and the exercising prices, individual income tax shall be paid for such interests as employees’ salary incomes.
The Circular provides if the employees acquire the put options which can be publicly traded, they belong to the assets with a certain value, and the individual income tax shall be levied on them as employees’ salary income of the month where the date of grant falls within; the individual income tax will not be re-calculated when any stock is purchased by exercising the stock options. The taxes on the incomes from the transfer of put options shall be dealt with as asset transfer incomes. ?
The Circular provides that a taxpayer shall declare its tax in the following five circumstances: (1) obtaining an annual income of RMB120,000 or more; (2) obtaining wages or salaries from two or more places in China; (3) obtaining incomes abroad; (4) obtaining taxable incomes and there is no withholding obligors; (5) other circumstances provided by the State Council. Any taxpayer belonging to the first category, whether enough taxes are withheld or not on the taxable incomes, shall declare to the administration on taxation within 3 months after a taxation year ends. The taxpayers belonging to the second to fourth category shall make taxation declaration and pay the taxes within a certain period after they acquire the incomes, according to the relevant provisions in the Circular.
In calculating the annual income of RMB120, 000, 11 taxable income categories shall be included, namely wage and salary income, the incomes derived from production and business operations conducted by self-employed households, the incomes from contracted or leased operation of enterprises or social institutions, remunerations for providing service, author’s remuneration, license fees, interests, dividends, bonus, incomes from lease of property, incomes from transfer of property, incidental incomes, other incomes determined to be taxable by the financial department of the State Council. However, incomes exempted from taxation, as provided in the “Individual Income Tax Law” and “Detailed Rules for the Implementation of Individual Income Tax Law”, shall not be included.
The Circular also provides on issues such as declaration place, declaration term, declaration means, and administration on declaration. For example, it provides that a taxpayer may declare by means of telecommunication or mail, go directly to the administrative authority, or adopt any other means according to the provisions.
The Circular provides that the provision “if annual income is RMB120000 or more, it should be declared” was effective from January 1, 2006 and the other provisions on tax declarations will be implemented from January 1, 2007.
The Opinions provides that if a unit has the basically external and internal characteristics as a lawfully established unit, such as name, business place, it can be affirmed as the unit which could have acquired the business license or been registered. But if the injury happens in an employment which does not have the above configuration, it shall be dealt with as civil cases.
Concerning the subject for the liability of compensation, the Opinions says that any unlawful employment units without business license or not registered or recorded, or whose business licenses are cancelled, the investors to the unlawful employment units shall be the subject for the liability of compensation; if a lawful unit employs a child labor, the unit shall be the subject for the liability of compensation.
The Interpretations points out that after the company completes its procedures of cancellation of registration, if a shareholder finds that there is missing debts or other assets of the company, he may bring the litigation to the court in his own name.
The Interpretations provides that if the company is cancelled while the debtors of the company have not been fully paid, and the shareholders acquire its creditor’s rights or assets, the creditors have the right to request such shareholders to pay off the debts of the company, limited by the assets they acquire. In addition, if the shareholders cancel the company without lawful liquidation, harming the creditors, then the shareholders shall take the civil liabilities. But the assets acquired after the cancellation of the company shall belong to the shareholders.
Shanghai Higher People’s Court promulgated “Interpretations regarding the Relevant Issues on Trial of Company Dispute Cases” on May 25, 2006, for the reference by the courts at the lower level.
The Interpretations provides when a shareholder asks the court to affirm that the resolutions of the shareholder meeting or board of directors are invalid, it is different from the situation when he asks for cancellation of the resolutions, whose right shall not be limited by 60 days after the resolution is made. Moreover, the shareholders of the listing companies also have the rights to apply for nullity or cancellation of the resolutions, but they shall provide the relevant evidence.
According to the Interpretations, if the shareholder asks the company to purchase his shares according to Article 75 of Company Law but there is no agreement, he shall file a suit within 90 days after the resolution is made.
The Interpretations provides that generally, a debt transfer contract shall be effective when it is executed. Therefore, if the consignee of the creditor’s rights asks the debtors to perform its obligation according to the debt transfer contract, and the debtor has objection on the amount of the debt, it shall not be the reason for the consignee to ask for confirmation of the invalidity of transfer agreement. If the court holds that the objection of the debtor can be affirmed, then the consignee may claim to the consignor for breach of contract or for compensation for the creditor’s rights which are not supported by the court.
§ IP Cases
The plaintiff stated that, as required by one of the defendants, Motorola Company in 2000, it set up a R&D team to work on the technical development on the Shark-Type mobile phone, to make improvements to the printed wiring board of mobile phone T189 to make it thinner. After that, the plaintiff had a lot of input in people and asset in the project and completed the design independently. In April 2002, the plaintiff found that the mobile phone of Motorola C289, which was manufactured by Motorola Company and sold by Shanghai No.1 Department Store, copied the drawings of the printed wiring board of mobile phone T189, without the permission of the plaintiff. The plaintiff held that it was an infringement upon the copyright of the plaintiff for Motorola Company to reproduce the design drawing of the printed wiring board of mobile phone T189, and had caused great economical losses to the plaintiff.
One of the defendants, Shanghai No.1 Department Store, defended that it should not be the defendant of this case.
Motorola Company defended that, firstly, the drawing of the printed wiring board claimed by the plaintiff was not the object protected by the Copyright Law. Secondly, Motorola Company was the only right holder of the mobile phones T189 and C289. Thirdly, according to the regulations of the Copyright Law, it was not reproduction under the Copyright Law to make an industrial product out of a product design. Therefore, the claim of the plaintiff was in lack of factual and legal basis that the mobile phone C289 produced by Motorola Company reproduced the drawing of the printed wiring board.
After the trial, the court held that printed wiring boards were graphic works, which should be protected by the Copyright Law. However, the printed wiring board was one of the industrial products with practical functions, and was beyond the protected scope of literature, arts and science works, so it was not the object protected by the Copyright Law. It was an act of producing industrial products, not an act of reproduction under the Copyright Law that Motorola Company produced the printed wiring board according to the blueprint of the printed wiring board. As producing according to the blueprint of the printed wiring board was not reproduction under the Copyright Law, even if the plaintiff held the copyright of the blueprint of the printed wiring board of mobile phone T189, and the printed wiring board of mobile phone C289 was the same as that of mobile phone T189 of the plaintiff, producing and selling mobile phone C289 should not constitute infringement, and thus the sale of mobile phone C289 by Shanghai No1. Department Store did not constitute infringement.
The ruling No. 2973 was made by the Trademark Review & Hearing Board in the dispute on the trademark No.1180484 “Heman CROWN” owned by Shenzhen Huayu Printing Co., Ltd.(hereinafter referred to as “Huayu Company”), which had been submitted by Hallmark Cards Inc. In the administrative procedure, Huayu Company had assigned the trademark in dispute to Yanglin. The ruling had held that the evidence submitted by Hallmark Cards, Inc., namely the registration certificates in U.S. and Hong Kong in 1993 and the report in Xinmin Evening News in 1995, had been formed before the application date of the trademark in dispute, and its evidential force was stronger than a sample of the wall calendar in 1993 and the film wall calendar series, and the testimony provided by Shenzhen Huarun Yongchang Printing Co., Ltd. (Hereinafter referred to as “Huarun Yongchang Company”). So the evidence of Hallmark Cards Inc. was adopted. According to the evidence so adopted, Huayu Company registered the trademarks of “CROWN” and “Heman”, though it knew that Hallmark Cards Inc. had already used the influential trademarks before, so it was registering, by unfair means, the trademark held by others. Therefore, the ruling repealed the trademark of “Heman CROWN” No. 1180484.
The plaintiff stated that the ruling No. 2937 made by the Trademark Review and Hearing Board violated the procedural provisions, and wrongly adopted facts and applied the laws, so it claimed to the court to repeal the ruling.
The court held that the provision of Article 26.2 of the “Rules for the Trademark Review and Adjudication” (“Where an applicant has any evidence to the contrary against the written pleadings and the evidentiary materials provided by the defending parties, the applicant shall submit all such evidence to the contrary in one submission to the Board within 30 days after receipt of the written pleadings and the relevant evidentiary materials”) only applied to the case that the applicant had evidence to the contrary to the pleadings and the relevant evidence. The report in Xinmin Evening News on July 14, 2005, was supplementary to the pleadings and evidence and was not evidence to the contrary. So it did not violate Article 26.2 of the “Rules for the Trademark Review & Adjudication”. ?Regarding the use of the trademark by the plaintiff, the court considered that the testimony submitted by the plaintiff should be the memory of a natural person who had the memorizing ability. The testimony provided by Huarun Yongchang Company, an entity, did not have the signature of its legal representative or a natural person, nor was there any witness to be examined in the court, so the testimony which only had been stamped by an entity and was not supported by the relevant contract or invoice was not enough to be adopted by the court, as the entity did not have the memory like a natural person does. Eventually, the court affirmed that the? ruling by the Trademark Review & Hearing Board adopted facts clearly and applied the laws correctly and it followed the procedures lawfully, so the rulding should be sustained.
The plaintiff stated that the plaintiff acquired the utility model patent No. ZL02219684.6 in the “inductively-controlled automatic cap-opening dustbin” (hereinafter referred to as “the Patent”). Within a short time after the marketing of the patented products, there were many infringing products in the market, the infrared inductive dustbin branded with “Fumate”, which were produced and sold by the defendant. From comparison, the infringing products had all of the necessary technical characteristics recorded in the patent right requirements of the plaintiff, which fell into the protected scope of the patented right held by the plaintiff, and thus the products infringed the patented right.
The defendant defended that the products were manufactured via OEM and the defendant itself did not produce the products claimed infringing. The court held that the defendant should be deemed as the producer as its name was shown on the infringing products. So the court held that it executed the production and the sale of such products. Secondly, the defendant defended that the products it sold had a lawful source. According to Article 63.2 of the Patent Law, one should not be liable if for business purpose, he used or sold patented products or products directly acquired according to the patented measures that he did not know were without the permission of the patent holder but he could prove the legal source of the products. The court held that the above provisions meant that one could be exempted from its compensation liability if he used and sold the infringing products produced by others and he could prove that the products had a lawful source. In this case, the defendant sold the products it produced, so the above provisions should not apply. Therefore, the court held that the acts of the defendant infringed upon the patent right of the plaintiff and most of the claims were supported.
The plaintiff stated that the Foreign Language Teaching & Research Press (“FLTRP”) successively published the “Modern Chinese-English Dictionary (New Edition)”, “English-Chinese and Chinese-English Dictionary” and “Modern English-Chinese Dictionary (New Edition)”, and all of them basically had the same design for the cover and the spine of the book, which formed the special style of FLTRP and was known to the readers. However, the “Chinese-English Dictionary”, published by Foreign Languages Press (“FLP”) in 2006, used the same design for the cover and the spine as the aforesaid dictionaries, only with few changes in the lines. The acts of FLP constituted infringement upon the design of FLTRP, and besides, it constituted unfair competition.
The defendant defended that the evidence provided by FLTRP was insufficient to prove that the dictionaries involved in the case were famous. Moreover, the decoration of the dictionaries did not have any particularity. Its design style and design concept were the commonly used style of the presses, and the other presses were accustomed to such similar design when publishing the relevant books, so it was not only held by FLTRP. Moreover, when the readers choose dictionaries, their attention was paid firstly to the reference and using function, secondly to the contents of the dictionary, and thirdly the publishing house, price, paper, portability, appearance etc. Similarity of the decorations would not mislead the readers. What is more, the dictionary of FLP and those of FLTRP are different dictionaries. Even if the names of the books were alike, the cover and the spine were not alike. FLP did not infringe upon the format design, nor did it constitute unfair competition.
The court held that the format design was a design of the presswork, including the arrangement of such factors of the format design as the page maker, wording, row spacing and punctuation. But the cover and the spine of the book were not format design of the print works, and they were layout design, which did not fall into the scope of format design protected by the Copyright Law. The court also considered that as FLTRP had done much promotion on the aforesaid dictionaries, the dictionary had already been well-known and well-sold among the reference books. So the dictionaries were well-known commodities, whose cover design was different from that of others, and had developed the particular decoration of the dictionaries. FLP should have known that the decoration of the cover and the spine of the “Chinese English Dictionary” was similar to those of the “English Chinese and Chinese English Dictionary”, ‘Modern English Chinese Dictionary” and “Modern Chinese English Dictionary”, but it still used the decorations of the cover and the spine. So the court held that there was fault on the part of FLP, and the act of publishing “Chinese English Dictionary” constituted unfair competition, and it should stop infringement, eliminate the effect and make compensations.
The court of the first instance held that, Saibo Company admitted that there were similarities in the source program and functions of the software of the two parties. Meanwhile, as the main workers, including Fan Kefang and Hu Baiyun, once worked in Aodima Company, and they should have contacted the disputed software of Aodima Company. They respectively became the general manager and a secretary in Saibo Company after they left Aodima Company. Zhu Qingyu, the legal representative of Saibo Company, once also worked in Audima Company, so he should have known that Fan Kefang and Hu Baiyun had contacted the software. Therefore, the CyberVue Anesthesia Clinical Information System V 1.0 Software (hereinafter referred to as “CV-A Software”) of Saibo Company should not be deemed as independently developed by Saibo Company, and it was acquired from Aodima Company, which was certainly a type of infringement. Saibo Company should stop infringement immediately and assume liabilities for infringement.
The appellant stated that, firstly, Saibo Company insisted that the CV-A Software was independently developed by itself, and there was no likeness or similarity between its source program and that of Operation Room Information System; secondly, during the trial by the court of the first instance, the appraisal organ had not compared the source program of the parties, so the court of the first instance failed to follow the Rules for Inducing Evidence when it adopted, only on the ground of “contact”, that Saibo Company committed infringement.
The court of the second instance held that Aodima Company did not submit any evidence to show the source program or target program of the accused software, so it could not prove the situations of the software and whether it was sold or used. What is more, it could not determine whether the source program, target program or the running interface were substantially the same as the software involved in the case, and whether it used the software involved in the case or which parts were used. Therefore, Aodima Company did not try its best to perform its burden of proof to prove that the accused software was substantially the same as the software involved in the case. However, the court of the fist instance affirmed deductively that Saibo Company infringed upon the software copyright of Aodima Company, though Aodima Company did not submit sufficient evidence and the appraisal organ did not have any conclusion on the comparison between the software. It was in lack of evidence and reason, so the court of the second instance made the correction.
§ Analysis of Cases
?????????? By Mr. Han Huixiao (Partner/attorney of Haworth & Lexon)
The case was generally as follows:
The plaintiff, Zhu Danqing contributed RMB 250, 000 in May, 1996 and thus became the shareholder of Beijing Flying Bird Project and Technology Service Co., Ltd. (hereinafter referred to as Flying Bird Company). Meanwhile, the Flying Bird Company had a resolution to agree that the name of the Flying Bird Company would be changed to Beijing Feitaike Project Technology Service Co., Ltd. (hereinafter referred to as Feitaike Company), and agree on change of the articles of association and that such three persons including Zhu Danqing shall be the directors of the company. In June 1995, Beijing Kaiya Industrial Co., Ltd. and Zhu Danqing signed the articles of association of Feitaike Company, providing that the shareholders had the right to know the business operation and financial conditions, and that the company should submit the financial and accounting reports of the previous year to the shareholders before January 15, and so on.
In the early 2006, Zhu Danqing filed the suit to the court against Feitaike Company, claiming that in the recent ten years, Feitaike Company denied the distribution of profit for the company had loss or was basically balanced. As a shareholder, Zhu Danqing had not known the business and financial conditions of the company, and he could not have access to any financial and accounting documents, so it could not take any legal measures to Feitaike Company’s harm to the shareholder’s interests. Therefore, Zhu Danqing asked the court to judge that Feitaike Company should provide the minutes of the shareholders’ meeting, the financial reports of the company and the accounting books from 1996 to 2006 for his check and copy. Feitaike Company defended that as a shareholder, Zhu Danqing did not participate in any operation of the company, so it did not agree with the application of the plaintiff.
After trial, the court held that the relationship between Feitaike Company and the shareholders should be regulated according to the Company Law and the articles of association of Feitaike Company. According to those provisions, Zhu Danqing had the right to check and copy the minutes of the shareholders’ meetings, the financial reports, and to check the accounting books of the company. The court judged that Feitaike Company should provide the minutes of the shareholders’ meetings, financial reports and the accounting books from 1996 to 2006 for his check and copy.
Then Feitaike Company appealed. Beijing No.2 Intermediate People’s Court repealed the appeal and the former judgment was sustained.
There were some legal questions in this case to be discussed:
